Effects of Financial Development on Economic Growth in Pakistan: Does FDI Matter?

This research focuses on the effect of Financial Development (FND) on economic growth, of Pakistan. Time series data from 1980 to 2024 is used in this study and Auto Regressive Distribution Lag (ARDL) technique is used to estimate the regression result. GDP growth, Foreign Direct Investment (FDI), domestic credit to private sector by bank, are the variables used in this study. Long run relationship is found between FND and economic growth. The long run coefficient results indicate that FND and FDI alone are negatively associated with economic growth. However, interaction of FND and FDI possesses significant positive effect on economic growth. This study suggests that FND and FDI are the important factors to solve the pertained low economic growth issue of Pakistan. As a policy recommendation, this study invites to follow the creditable policies for inviting FND and FDI due to having a significant potential for favouring economic growth.