Does Corruption Increase Financial Development? A Time Series Analysis in Pakistan

The intention of paper is to analyze the effect of corruption on financial development in Pakistan using time series data for the period of 1987-2009. In doing so, ARDL bounds testing approach to cointegration has been applied. The direction of causality is investigated by using VECM granger causality approach. Our results reveal that rise in corruption promotes financial development and bivariate causal relationship is found between both variables. Thisstudy opens new directions for policy makers to save financial sector by declining corruption. This will not only facilitate financial institutions to perk up the effectiveness of financial sector but also stimulates and triggers economic growth rate.