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Financial crises and economic growth in Pakistan: a time series analysis

Author

Listed:
  • Azam, Rauf i
  • Batool, Iram
  • Imran, Rabia
  • Chani, Muhammad Irfan
  • Hunjra, Ahmed Imran
  • Jasra, Javed Mahmood

Abstract

The purpose of this research is to investigate causal relationship between economic growth and major indicators of financial crisis -- inflation rate, interest rate and the volume of foreign debt-- in Pakistan. This study also highlights the stability of the relationship between indicators of financial crisis and economic growth. The annual time series data ranging from 1972 to 2010 is used for the analysis. Johansen's co-integration test is used to check the stability of long run equilibrium relationship between the variables used in the study. The results indicate that is long run stable equilibrium relationship between economic growth and the three components of financial crisis in Pakistan. The estimates based on pair-wise Granger Causality test show that bidirectional causal relationship between economic growth and the each indicator of financial crisis considered in this study.

Suggested Citation

  • Azam, Rauf i & Batool, Iram & Imran, Rabia & Chani, Muhammad Irfan & Hunjra, Ahmed Imran & Jasra, Javed Mahmood, 2010. "Financial crises and economic growth in Pakistan: a time series analysis," MPRA Paper 40691, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:40691
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    References listed on IDEAS

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    1. Muhammad Irfan CHANI & Zahid PERVAIZ & Amatul R. CHAUDHARY, 2011. "Determination of Import Demand in Pakistan: The Role of Expenditure Components," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(8(561)), pages 93-110, August.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Bordo, Michael D. & Meissner, Christopher M., 2006. "The role of foreign currency debt in financial crises: 1880-1913 versus 1972-1997," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3299-3329, December.
    4. Kwack, Sung Yeung, 2000. "An empirical analysis of the factors determining the financial crisis in Asia," Journal of Asian Economics, Elsevier, vol. 11(2), pages 195-206.
    5. Tarun K. Mukherjee & Atsuyuki Naka, 1995. "Dynamic Relations Between Macroeconomic Variables And The Japanese Stock Market: An Application Of A Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, June.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Hunjra, Ahmed Imran & Azam, Muhammad & Niazi, Ghulam Shabbir Khan & Butt, Babar Zaheer & Rehman, Kashif-Ur- & Azam, Rauf i, 2010. "Risk and return relationship in stock market and commodity prices: a comprehensive study of Pakistani markets," MPRA Paper 40662, University Library of Munich, Germany.
    8. Azam, Muhammad & Khan, Hashim & Hunjra, Ahmed Imran & Ahmad, H. Mushtaq & Chani, Muhammad Irfan, 2011. "Institutions, macroeconomic policy and foreign direct investment: South Asian countries case," MPRA Paper 32480, University Library of Munich, Germany.
    9. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
    10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    11. Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, Summer.
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    Cited by:

    1. Sibusiso Clement Makaringe & Hlalefang Khobai, 2018. "The effect of unemployment on economic growth in South Africa (1994-2016)," Working Papers 1815, Department of Economics, Nelson Mandela University, revised Mar 2018.
    2. Sallahuddin Hassan & Zalila Othman & Zalina Mohd Mohaideen, 2018. "The relationship between economic growth and employee provident fund: an empirical evidence from Malaysia," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(2), pages 229-242, April.
    3. Khalid Mughal & Irfan Khan & Farhat Usman, 2015. "The Impacts of Financial Crisis on Pakistan Economy: An Empirical Approach," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(5), pages 258-269.

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    More about this item

    Keywords

    Macro economic variables; economic growth; co-integration; financial system;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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