Investment, Savings, Interest Rate and Bank Credit to the Private Sector Nexus in Pakistan

Abstract

The present study examines long run and short run association among Investment, Savings, Real Interest rate onBank deposits and Bank Credit to the private sector, accompanied with the impact of financial liberalization onkey macro economic variables in Pakistan for the period 1973 to 2007. ARDL Bounds Testing Approach hasbeen applied for co-integration of annual time series data. To test the order of integration of the variables,DF-GLS and Ng-Perron Tests have been employed. The results show that Private Investment is positivelyaffected by Savings, Real interest rate on bank deposits, Bank credit to private sector and Public investment inthe long run in a developing country like Pakistan, supporting Complementarity Hypothesis of Mckinnon-Shaw(1973).