Financial Liberalization and Economic Growth in Pakistan: Empirical Evidence from Co-integration Analysis

The present study is an attempt to investigate the empirical linkages among economic growth and financial liberalization in Pakistan during 1972-2010 by using annual time series data. ADF unit root test is used to check the stationary of variables. Long run relationship is confirmed through Johansen co-integration test. VECM is employed to check short run dynamics among variables. The main data sources are various publications of state bank of Pakistan, economic survey of Pakistan and SBP annual reports. The empirical results show that there exists a positive relationship between financial liberalization and economic growth. Deposit rate has positive impact on economic growth while lending rate has negative impact on economic growth which is according to financial liberalization theory