Analyzing Supply leading hypothesis in Pakistan by considering Major Macro-economic variables

The research investigated between financial markets and development in the economy of Pakistan focusing on the Supply Leading Hypothesis taking period from 1973 to 2024 on yearly basis. According to Schumpeter theory “The Supply Leading Hypothesis 1911”, Economic growth is achieved through innovation or new products, introduce new methods of production, and exploring new markets. Therefore, financial support is inevitable, which increases savings thus, high savings lead to more investment opportunities in the economy. In later studies, the Schumpeter theory was checked that financial indicators are the cause of high economic growth or not. These studies supported the theory of Schumpeter Here, the core objective of this study, is to confirm that does Supply leading Hypothesis exists in Pakistan, whether in long and short runs. Moreover, some related variables are considered such as the Domestic Output of the Year (GDP) that is taken as the economic growth measure, including Final Consumption Expenditures (FCEX), Total Investment (TINV), Federal Government Expenditures (FGEX), Consumer Price Index (CPI), Per Capita (PC), National Savings (NS), are considered as macro-variables of the economy’s growth. Furthermore, the variables of financial markets are selected as bank credit to private sector (BCPS), market capitalization of KSE all index (MCKI), Karachi stock exchange general shares (KSEG)/ All-Share Price Index. The empirical analysis by ARDL and the causality test by Granger provided insights into short and long-runs relationships for financial Markets and growth. It was clearly seen that financial markets and other Macro-economic variables have a crucial impact in the short and long run on economic growth. The result of this research supports the objective that supply leading hypothesis occurs in Pakistan. Hence, the policies should provide strict rules and regulations to upgrade financial markets.