FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: TIME SERIES EVIDENCE FROM PAKISTAN AND CHINA

This study attempts to explore the relationship between financial development and economic growth for China and Pakistan over the period 1960-2005. The bound testing (ARDL) approach to cointegration is conducted to establish the existence of a long run relationship. The study uses deposit liability ratio (DLR) and credit to private sector (CPS) as proxy to financial development. We find different results for both countries, those are, DLR and CPS both have a significant impact on the economic growth of Pakistan whereas in the case of China, CPS has an insignificant impact while DLR has an insignificant effect on growth. This result may be attributed to the inefficient allocation of Pakistan