Does financial instability weaken the finance-growth nexus? A case for Pakistan

Shahbaz, Muhammad and Malik, Muhammad Nasir (2011): Does financial instability weaken the finance-growth nexus? A case for Pakistan.

Abstract

The paper investigates whether financial instability weakens finance-growth nexus in case of Pakistan. In doing so ARDL bounds testing approach is used for cointegration among variables over the period of 1971-2005. The results show that financial instability does weaken finance-growth nexus. Trade openness increases economic growth through spillover effects. Increasing inflation retards economic growth i.e., lower inflation rates are necessary for sustained economic growth. Political instability impedes economic growth. The present study indicates new direction for policy makers to sustain the pace of economic growth and avoid financial crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Crisis, Financial Development, Economic Growth
• Subjects: N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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