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

Azam, Rauf i and Batool, Iram and Imran, Rabia and Chani, Muhammad Irfan and Hunjra, Ahmed Imran and Jasra, Javed Mahmood (2010): Financial crises and economic growth in Pakistan: a time series analysis. Published in: Middle-East Journal of Scientific Research , Vol. 9, No. 3 (2011): pp. 425-430.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macro economic variables, economic growth, co-integration, financial system
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises

References

Caprio, G., D. Klingebiel, 2003. Episodes of Systemic and Borderline Financial Crises. World Bank database, Washington, D.C.: The World Bank.

Kwack, S.Y., 2000. An Empirical Analysis of Factors Determining the Financial Crises in Asia. Journal of Asian Economics, 11: 195-206.

Diamond, D.W., R. G. Rajah, 2001. Banks, Short-Term Debt and Financial Crises: Theory, Policy Implications and Applications. Carnegie-Rochester Conference Series on Public Policy, 54: 37-71.

Meissner, C.M., M.D. Brodo, 2006. The Role of Foreign Currency Debt in Financial Crises: 1880–1913 versus 1972–1997. Journal of Banking & Finance, 30: 3299–3329.

Sau, L., 2009. Banking, Information, and Financial Instability in Asia. Journal of Post Keynesian Economics, 25: 493-513.

Yun-Hwan Kim, 2001. The Asian Crisis, Private Sector Saving, and Policy Implications. Journal of Asian Economics, 12, 331–35.

Dickey, D.A., and W.A. Fuller, 1979. Distribution of the Estimation for Autoregressive Time Series with Unit Root. Journal of the American Statistical Association, 74: 427-431.

Dickey, D.A. and W.A., Fuller, 1981. Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4): 1057-1072.

Johansen, S., 1988. Statistical Analysis of Co-integrating Vectors. Journal of Economic Dynamics and Control, 12(2-3): 231-254.

Johansen, S., 1991. Estimation and Hypothesis Testing of Co-integration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59(6): 1551-1580.

Granger, C. W. J., 1986. Developments in the Study of Cointegrated Economic Variables. Oxford Bulletin of Economics and Statistics, 48(3): 213-28.

Engle, R., and C. Granger, 1987. Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2): 251-276.

Shirtcliff, E. A., D. A. Granger, E. B. Schwartz, M. J. Curran, A. Booth, and W. H. Overman, 2000. Assessing Estradiol in Biobehavioral Studies Using Saliva and Blood Spots: Simple Radioimmunoassay Protocols, Reliability and Comparative Validity. Hormones and Behavior, 38(2): 137-47.

Hunjra, A.I; M. Azam; G. S. K. Niazi; B. Z. Butt; K. U. Rehman; R. I. Azam, 2011. Risk and Return Relationship in Stock Market and Commodity Prices: A Comprehensive Study of Pakistani Markets. World Applied Sciences Journal, 13(3): 470-481.

Azam, M.; H. Khan; A. I. Hunjra; H. M. Ahmad; M. I. Chani, 2011. Institutions, macro-economic policy and foreign direct investment: South Asian countries case. African Journal of Business Management, 5(11): 4306-4313.

Chani, M. I.; Z. Pervaiz; A. R. Chaudhary, 2011. Determination of Import Demand in Pakistan: The Role of Expenditure Components, Theoretical and Applied Economics, 18(8): 93-110.

Mukherjee, T. and A. Naka, 1995. Dynamic Linkage between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model, Journal of Financial Research, 18: 223-37.