Abstract

The study empirically investigated the long run relationship between financial sector development and unemployment in Pakistan, along with the direction of causality. Annual data used were from the period of 1973 to 2007. Auto Regressive Distributed Lag (ARDL) bound testing technique for cointegration was applied to estimate the long run relationship. A stable long run relationship was found between financial sector indicators and unemployment. Escalating money circulation in economy proved to have negative impact on employment rate as it increased the unemployment rate by 2.3 percent for aone percent increase in M2 minus currency in circulation/GDP. Increased Financial sector activities showed positive impact on reducing unemployment in short run as well as in the long run. Further, Granger causality test revealed the importance of credit disbursement to private sector in improving job opportunities and increasing employment rate.

This work is licensed under a Creative Commons Attribution 4.0 License.