Abstract:
In the last two decades, the financial services sector in Pakistan has seen
remarkable growth and structural development. However, it is debatable whether
the financial markets and institutions have contributed meaningfully towards
promoting growth in the real economy. This paper provides a brief background of
the theoretical and empirical literature on the linkage between the financial
services sector and economic growth. It evaluates the development of Pakistan's
financial markets and institutions in comparison to a cohort of developing
countries. The country's governance and regulatory environment in light of these
theories and the empirical evidence is compared with other countries. The
weaknesses in the linkages between finance and economic growth are identified
within the framework of the theoretical models and relevant empirical evidence.
The final section discusses the challenges Pakistan faces in making its financial
services sector become an effective driver of economic growth.
