Role of Financial Services in Economic Growth: Policy Implications for Pakistan

Abstract

In the last two decades, the financial services sector in Pakistan has seen remarkable growth and structural development. However, it is debatable whether the financial markets and institutions have contributed meaningfully towards promoting growth in the real economy. This paper provides a brief background of the theoretical and empirical literature on the linkage between the financial services sector and economic growth. It evaluates the development of Pakistan's financial markets and institutions in comparison to a cohort of developing countries. The country's governance and regulatory environment in light of these theories and the empirical evidence is compared with other countries. The weaknesses in the linkages between finance and economic growth are identified within the framework of the theoretical models and relevant empirical evidence. The final section discusses the challenges Pakistan faces in making its financial services sector become an effective driver of economic growth.

Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model

“…The present study uses the Markov Switching (MS) modeling technique to capture the nonlinearities in the financegrowth nexus in Pakistan. Earlier studies (e.g., Ali & Bhutta, 2018;Jalil & Ma, 2008;Khan et al, 2005Khan et al, , 2019Mahmood, 2013;Naveed & Mahmood, 2019;Uppal & Mangla, 2018) have investigated the relationship between financial development and economic growth in Pakistan and overlooked the possible nonlinear aspect of finance-growth relationship. Therefore, the present study examines regime-specific relationship between financial development and economic growth in Pakistan.…”

The contribution of Shariah-Compliant products to SDGs attending through the pace of economic growth: an empirical evidence from Pakistan

“…In addition, among the explanatory variables, financial sector development (FSD t ) is used as a mediator. Following received literature on the subject (Waheed, 2009; Abubakar and Gani, 2013; Puatwoe and Serge, 2017; Khalid and Nadeem, 2017; Avci and Yucel, 2017; Uppal and Mangla, 2018; Bahri et al , 2018 among others), money supply (M 2 ), stock market capitalization (SMC t ) and bank private credit as a percentage of GDP are used as a proxy of financial sector development [3].…”