Impact of Financial Intermediation and Financial Sector Efficiency on Economic Growth in Pakistan
DOI:
https://doi.org/10.31384/jisrmsse/2019.17.1.2Keywords:
financial intermediation, Net interest spreadAbstract
The financial sector plays a significant role in the economic development of a country. The aim of the study is to investigate the impact of financial intermediation and financial sector efficiency on economic growth in Pakistan. The study examines time series data from 1973 to 2014 to examine long-run cointegration by employing ARDL approach GDP per capita is used for economic growth while credit to the private sector is used as a proxy for financial intermediation. Efficiency is measured by interest rate spread which is equal to the difference between the lending interest rate and deposit interest rate. The results showed that financial intermediation has a positive significant impact on the economic growth of Pakistan in both long run and short run while financial sector efficiency has a positive impact on economic growth only in the long run. The study concluded that Pakistan should develop modern and stable financial institutions in order to enhance the ability of the financial sector to lend more which in turn creates investment opportunities that contribute to economic growth and development eventually.
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