The determinants of economic growth in Pakistan: Does stock market development play a major role?

Abstract

This paper provides an empirical analysis of the relationship between economic growth and its determinants with special focus on the stock market development in Pakistan. using data for the period from 1971 to 2006, we employed FMOLS and ARDL bounds-testing for the long run relationship and ECM for the short run dynamics. The findings suggest a positive relationship between efficient stock market and economic growth both in short run and long run. Financial instability and inflation have negative effects while human capital and foreign direct investment have positive effects on growth. Stock market liquidity is found to have significant positive effect on growth. The results are consistent with the theoretical and empirical predictions.