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Financial development–economic growth nexus in Pakistan: new evidence from the Markov switching model

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  • Abdul Rahman
  • Muhammad Arshad Khan
  • Lanouar Charfeddine
  • David McMillan

Abstract

This paper investigates the impact of financial development on economic growth in Pakistan using the Markov Switching Model over the period 1980–2017. The results based on two-state Markov switching model confirm the Schumpeter’s view that finance spurs growth. The result reveals that financial development augments economic growth in both high and low economic growth regimes in Pakistan. However, the impact of financial development on economic growth is found to be relatively higher in the high-growth regime. This implies that economic growth responds differently to financial development in low-growth and high-growth regimes. Among the control variables, trade openness and government expenditures impact economic growth positively, while labour force exerts a negative impact on economic growth.

Suggested Citation

  • Abdul Rahman & Muhammad Arshad Khan & Lanouar Charfeddine & David McMillan, 2020. "Financial development–economic growth nexus in Pakistan: new evidence from the Markov switching model," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1716446-171, January.
    • Handle: RePEc:taf:oaefxx:v:8:y:2020:i:1:p:1716446
    DOI: 10.1080/23322039.2020.1716446
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    Citations

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    Cited by:

    1. Zahid Mehmood Akhtar & Dr. Faid Gul & Dr. Fauzia Mubarak, 2024. "Economic Growth and Financial Intermediation Nexus in Pakistan: An ARDL Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 542-551.
    2. Muhammad Shahbaz & Mohammad Ali Aboutorabi & Farzaneh Ahmadian Yazdi, 2024. "Foreign Capital, Natural Resource Rents and Financial Development: A New Approach," Global Business Review, International Management Institute, vol. 25(2), pages 401-420, April.
    3. Wang, Kai-Hua & Liu, Lu & Adebayo, Tomiwa Sunday & Lobon, Oana-Ramona & Claudia, Moldovan Nicoleta, 2021. "Fiscal decentralization, political stability and resources curse hypothesis: A case of fiscal decentralized economies," Resources Policy, Elsevier, vol. 72(C).
    4. Song, Xianyun & Hou, Wenwen, 2024. "Mineral resources and growth nexus in ASEAN countries: What role do trade diversification, ICT, and financial inclusion play in the resource curse spectrum?," Resources Policy, Elsevier, vol. 91(C).
    5. Clement Olalekan Olaniyi & Sunday Idowu Oladeji, 2021. "Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries," Economic Change and Restructuring, Springer, vol. 54(1), pages 43-74, February.
    6. Tariq, Rameez & Rahman, Abdul & Khan, Muhammad Arshad, 2023. "Does Human Capital Reinvigorate the Relationship Between Financial Development and Economic Growth: Evidence from Pakistan," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 30(2), July.
    7. Zhou, Rong & Su, Kaihua & Zheng, Li, 2022. "Natural resources led growth and the role of financial development: Evidence from Next-11 economies," Resources Policy, Elsevier, vol. 79(C).
    8. Adewale Samuel Hassan & Daniel Francois Meyer, 2022. "Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa," JRFM, MDPI, vol. 15(10), pages 1-20, October.
    9. Rahman, Abdul & Khan, Muhammad Arshad & Charfeddine, Lanouar, 2021. "Regime-specific impact of financial reforms on economic growth in Pakistan," Journal of Policy Modeling, Elsevier, vol. 43(1), pages 161-182.
    10. Manuel Ennes Ferreira & João Dias & Jelson Serafim, 2022. "Stock Market and Economic Growth: Evidence from Africa," Working Papers REM 2022/0228, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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