IMPACT OF MONEY SUPPLY AND FINANCIAL INNOVATION ON ECONOMIC GROWTH OF PAKISTAN: A NEW PERSPECTIVE

Abstract

In any economy, GDP Growth is massively motivated by rapid innovation in the financial system. Financial system plays an important role to promote economic growth in any country. It also improves the financial operation in Foreign Trade with other countries. So, the aim of the present study is to investigate the impact of Financial Innovation on Economic Growth in case of Pakistan. For this purpose, the study used different macroeconomic variables including, GDP as dependent variable, and domestic credit to private sector is used as proxy of financial innovation. Other control variables include, Ratio of M1 to M2, Gross Capital Formation (GCF), Government Spending (GE), Trade (TR), Labour Force (LF) and Inflation (INF). Annual Time Series Data is collected of selected variables from 1980 to 2020. The study analyses data by applying Ordinary Least Square (OLS) method.  The empirical results of OLS indicate that, Financial Innovation (FI), boost up economic growth, this shows the positive impact on GDP, while other variables including, M1M2, GCF, GE, TR and LF put positively significant impact on GDP, while only INF has negative and insignificant impact on GDP.