Empirical evidence of Banking Sector Development and Economic Growth in Pakistan: A Time Series Approach

The study purpose was to investigate the long-term effect of the Banking sector on economic progress of Pakistan. In the application of Johansen Cointegration method on time series data for 1980-2018, we found stable cointegration relationship for Pakistan. Results indicate that the Banking sector development (BSD) proxied by Advances, Remittances are positively related with economic growth while money market rate (MMR) used as substitute for interest rate was negatively related with economic progress. Evidence demonstrates consistent nature of the banking sector-growth nexus, suggesting that for promoting growth, long-run policies should be geared towards improving banking sector investment and environment supported by technological innovations. The results support strong evidence and positive role of real factors of banking sector development indicators with economic growth for Pakistan.