Open AccessAn Investigation of the Effectiveness of Financial Development in Pakistan
Author(s) -
Muhammad S. Tahir
Publication year - 2008
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2008.v13.i2.a2
Subject(s) - endogeneity , economics , error correction model , cointegration , variable (mathematics) , econometrics , causality (physics) , macroeconomics , mathematics , mathematical analysis , physics , quantum mechanics
This study attempts to discern the relationship between economic and financial development in Pakistan for the period 1973 - 2006. Vector error-correction modeling is used to identify the causality between economic and financial development and the exogeneity of the variable(s) in the model. These error correction terms have been derived from Johansen’s multivariate cointegrating procedure. Results indicate that, in the long run, economic development causes financial development. Furthermore, the real output variable is found to be exogenous. Thus, financial development is seen to be ineffective in terms of economic development determination in Pakistan.