Impact of Bank Lending on Economics Growth in Pakistan: An Empirical Study of Lending to Private Sector

Abstract

Bank credit plays an important role in the economy of any nation. The current study examined the association among bank credit to private sector and economic growth in Pakistan. Economic growth was taken as dependent variable, while bank credit to private sector, interest rate, inflation, investment to GDP and government consumptions were taken as independent variables. Secondary data were collected from World Bank Indicator, ranging for the period 1973 to 2013. Descriptive research and correlation were used to check the normality of data. Unit root test was used to check the stationarity of variables. Co-integration VECUM and Granger Casuality test were statistically used to test the variable relationship and casuality effect of the variable. Regression analysis was used to analyze the impact of bank credit on economic growth. The findings of the study showed that bank credit had extensive relationship with economic progression; in short term the relationship was also significant. Regression analysis showed that there was adverse impact of bank credit on economic growth in Pakistan. However, problem associated with bank credit facility is the constraint and regulation imposed by SBP on the percentage of credit to be given to the Entrepreneurs. For solitary in the meantime bank lending has a casual influence on economic growth, there is a policy need to give devotion to liberalization the monetary sector.