The Bound Testing Approach for Co-Integration and Causality between Financial Development and Economic Growth in Case of Pakistan

Abstract

The supply-leading or demand-following hypotheses are examined in this study in case of Pakistan. There are two prime objectives of this study first to check the existence of co-integration between financial development and economic growth and second the direction of causality between the two. The result favors that the demand-following hypothesis is rejected by the supply-leading hypothesis with reference to Pakistan, which is proposed in this results that there are more than one co integration vector between financial development and real per capita income; it is found that unidirectional causality runs from real per capita income to financial development.