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Multivariate-based Granger causality between financial deepening and poverty: the case of Pakistan

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Abstract

This paper deals with the empirical investigation of causal relationship between financial deepening, economic growth and poverty reduction using quarter frequency data in case of Pakistan over the period of 1972–2011. We applied the autoregressive distributed lag model bounds testing approach by incorporating structural breaks stemming in the series. The order of integration of the variables is examined by applying structural break unit root test. Our empirical exercise indicated that the long run relationship between financial deepening, economic growth and poverty reduction exists in case of Pakistan. The causality analysis implied that causality results are sensitive with the use of proxy for poverty reduction.

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Notes

  1. Pakistan was also declared Asian Tiger by Shoukat Aziz.

  2. The sample countries are Australia, Austria,Belgium, Bolivia, Brazil, Central African Republic, Canada, Chile, Colombia, Costa Rica,Germany, Denmark, Dominican Republic, Algeria, Ecuador, Spain, Finland, France, United Kingdom, Ghana, Gambia, Greece, Guatemala, Honduras, Indonesia, India, Ireland, Iran, Israel,Italy, Jamaica, Japan, Kenya, Republic of Korea, Sri Lanka, Lesotho, Mexico, Mauritius, Malawi, Malaysia, Niger, Netherlands, Norway, Nepal, New Zealand, Pakistan, Panama, Peru,Philippines, Portugal, Paraguay, Rwanda, Sudan, Senegal, Sierra Leone, El Salvador, Sweden,Thailand, Trinidad and Tobago, United States, Venezuela, South Africa and Zimbabwe.

  3. Shahbaz and Islam (2011) proved that income inequality narrowing hypothesis works in Pakistan.

  4. Australia, Burundi, Burkina Faso, Bangladesh, Bulgaria, Bahamas, The Bolivia, Brazil, Botswana, Canada, Chile, Cote d’Ivoire, Cameroon, Colombia, Costa Rica, Germany, Denmark, Dominican Republic, Algeria, Ecuador, Egypt, Arab Rep. Spain, Ethiopia, Finland, France, United Kingdom, Ghana, Gambia, Greece, Guatemala, Guyana, Hong Kong, China, Honduras, Croatia, Hungary, Indonesia, India, Jamaica, Japan, Kenya, Korea, Rep. Lao PDR, Sri Lanka, Lesotho, Morocco, Madagascar, Mexico, Mali, Mongolia, Mauritania, Malaysia, Niger, Nigeria, Nicaragua, Netherlands, Norway, Pakistan, Panama, Peru, Philippines, Poland, Portugal, Paraguay, Romania, Senegal, Singapore, Sierra Leone, El Salvador, Slovenia, Sweden, Thailand, Trinidad and Tobago, Tunisia, Turkey, Uganda, Uruguay, United States, Venezuela, Vietnam, South Africa, Zambia.

  5. Barbados, Burkina Faso, Burundi, Colombia, Costa Rica, Cote d’Ivoire, Dominican Republic, Ecuador, El Salvador, Caribbean Gabon, Gambia, Ghana, Guatemala, Honduras, India, Jamaica, Kenya, Madagascar, Malaysia, Mexico, Nepal, Niger, Nigeria, Pakistan, Panama, Paraguay, Philippines, Rwanda, Senegal, Sierra Leone, South Africa, Sri Lanka, Thailand, Trinidad and Tobago and Venezuela.

  6. We used model-4 for empirical estimations following Sen (2003).

  7. The structural breaks are based on Zivot and Andrews (1992).

  8. For more details see (Shahbaz 2010).

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Authors and Affiliations

  1. Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia

    Ijaz Ur Rehman

  2. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan

    Muhammad Shahbaz

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  1. Ijaz Ur Rehman
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  2. Muhammad Shahbaz
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Correspondence to Ijaz Ur Rehman.

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Rehman, I.U., Shahbaz, M. Multivariate-based Granger causality between financial deepening and poverty: the case of Pakistan. Qual Quant 48, 3221–3241 (2014). https://doi.org/10.1007/s11135-013-9952-z

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