The Casual Nexus of Banking Sector Development and Poverty Reduction in Pakistan

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Banking Development and Poverty

Table of Contents

CHAPTER 1: INTRODUCTION....................................................................................................1
1.1.

Overview...........................................................................................................................1

1.2.

Problem Statement............................................................................................................1

1.3.

Background of the Research.............................................................................................2

1.3.1. Significance of the Research..........................................................................................3

1.3.2. Objective of the Research..............................................................................................4
1.4.

Outline of the Research.....................................................................................................4

CHAPTER 2: LITERATURE REVIEW.........................................................................................6

2.1.

Introduction.......................................................................................................................6

2.2.

Economic Growth.............................................................................................................6

2.3.

Financial Development.....................................................................................................7

2.4.

Banking Sector Development...........................................................................................8

2.5.

Poverty Reduction...........................................................................................................10

2.6.

Relationship between Banking Sector development and Poverty Reduction.................10

2.7.

Research Hypothesis.......................................................................................................11

CHAPTER 3: METHODOLOGY.................................................................................................12
3.1.

Methods of Data Collection............................................................................................12

3.2.

Sampling Technique........................................................................................................12

3.3.

Sample Size.....................................................................................................................13

3.4.

Statistical Technique.......................................................................................................13

3.5.

Research Model...............................................................................................................13

CHAPTER FOUR: ANALYSIS AND DISCUSSION..................................................................15

4.1. Overview.............................................................................................................................15
4.2. Time Series Analysis...........................................................................................................15
4.3. Output from Eviews............................................................................................................15
4.4. Interpretation 1....................................................................................................................17
4.5. Interpretation 2....................................................................................................................19
REFERENCES..............................................................................................................................23

Banking Development and Poverty1

CHAPTER 1: INTRODUCTION

1.1.

Overview
Poverty in Pakistan has almost always been a major macroeconomic issue and it has

attracted many scholars for their researches. In the recent years, there is a substantial body of
relationship between financial development and poverty reduction is established. And the
literature found is quite conclusive for poverty reduction in improving the banking sector. Some
former studies have given a certain threshold to this argument of economic development, while
others have studied the dynamics of poverty reduction. To study the banking sector development
for poverty reduction, a huge amount of data is used like cross-section data analysis (Yu
Ho&Odhiambo, 2011, p.103).
According to Uddin et al., 2013, p.406), the influence of improvement in finance sector
has ambiguous and uncertain results on poverty reduction in developing countries (Pradhan,
2010, p.114). While comparing poverty reduction with growth model, poverty reduction has
more leverage and significance in economic growth. The standpoint that economic progress can
lead to poverty reduction is not necessary. It implies that the economic growth result in
improving poor lives quality, but it does not.

1.2.

Problem Statement
Although there have been an extensive researches, studies and models that discussed the

impact of banking sector development on poverty reduction, but the results were not certain.
However, the topic needs modifications. The banking sector has been playing a vital role in
encouraging the economic growth which in turn leads to poverty reduction in Pakistan. Poverty

Banking Development and Poverty2

in Pakistan is one of the most researched areas after education and health. There are theories and
models to study the impact of baking sector development on Poverty reduction. In late 90s the
reforms of financial sector initiated which eventually developed a feasible and satisfactory
environment for poor and middle class had options in getting credits (Yu-Ho&Odhiambo, 2011,
p.105).

1.3.

Background of the Research

While examining the banking sector development, it is essential to understand the phases

of financial sector development. As financial sector development is an effective tool for economy
growth of a country. Many studies have provided that a well-functioning financial system that
allocates resources mobilizes savings and calculates risk management is a contribution to
economic progression. In addition to economic growth, the financial services are more in
demand for the financial advancement.

Some suggests an indirect bi-directional formal

relationship between economic growth and banking sector development. On the contrary, it is not
argued to that the financial development would have an impact on poverty reduction
(Inoune&Hamori, 2010, p.1).
Poverty reduction, on the contrary, has been the subject of many researchers area of
study. In Pakistan it has been a foremost and a major issue, as Pakistan is also included in the list
third world countries. It has been a serious problem as it affects the global economy as well.
Government of Pakistan has taken some robust initiatives to struggle with poverty and the
officials are concerned about the poverty reduction in Pakistan (Shafiq et al., 2012, p.366). Some
researchers have studied the impact of financial development on poverty reduction by applying

Banking Development and Poverty3

the autoregressive lag model (ARDL) for a longer period to control the variables like agricultural
growth, inflation and manufacturing (Inoue &Hamori, 2012; Ellahi, 2011; Uddin et al., 2013).

1.3.1. Significance of the Research

This research is significant is examining the financial deepening for poverty reduction.
There is an interrelation between banking sector development and poverty reduction that can by
analyzed. Other studies have been providing the relationship and impact of financial
development on poverty reduction, while this study specifically signifies the relationship of
banking sector development, which is a biggest component of financial development, with
poverty reduction (Khan et al., 2011). Furthermore, there is a significant effect of income
inequality on the poverty rate which is verified. Here, this research examines the relationship
between the banking sector development and poverty reduction. Growth is directly dependent on
the financial sector development and poverty depends on growth, here we check the direct
relationship of banking sector development with poverty reduction. For Banking sector, different
components are applied as variables, deposits money banks assets to GDP, central bank assets to
GDP, bank deposits and concentration (Khan et al., 2011). To reduce poverty, it is important to
improve banking sector development and increase financial development in Pakistan which
directly leads to economic growth. Financial sector contain the institutions in economy, retail,
formal and informal outlets, and wholesales that offer financial institutes (Khan et al., 2011,
p.59).

Banking Development and Poverty4

1.3.2. Objective of the Research

To study the relationship of financial development on economic growth

To study the significance of banking sector development on financial development

To study the relationship of financial development with poverty reduction

To study the interrelation of Banking sector development with poverty reduction

1.4.

Outline of the Research

Chapter 1 is the contextual background of the research led by aims and objectives of the

research, along with problem statement and significance. This chapter provides general
understanding of the subject, what the research was projected at, what evaluates the need of
research on the issue and how the research can be used as a source in future, etc.
Chapter 2 is a comprehensive review of the former literature and recent research on the
topic. The basic themes, models, theories and issues are discussed here coupled with essential
research findings to shed light on what is already known about the issue and what are the
portions to take up future research and investigation. This chapter also includes the conceptual
framework for the study which strongly emphasizes its base whereas the hypothesis has also
been created supported by literature review.
Chapter 3 is a research methodology i.e. research philosophy, research design, approach,
sampling techniques, type of investigation, data collection and analysis technique, etc. This
chapter moreover comprises the limitations, hypothesis and variables in the study. The chapter
broadens the generalizability of the study by offering a brief review of the research procedure
and by recognizing the limitations.

Banking Development and Poverty5

Chapter 4 is a data analysis including tabular and graphical representation of the data for
simplifying and understanding the research while discussing the results and its explanations as in
the literature review and hypothesis. Quantitative and qualitative analysis of the results have
been developed under this chapter to provide the reader with highlights of the research, its
findings and the significance of its findings.
Lastly, Chapter 5 concludes the research with sole findings and provides the
recommendations and suggestions for the research. This chapter is the core of the complete
research and sums up the main factors of the research.

Banking Development and Poverty6

CHAPTER 2: LITERATURE REVIEW

2.1.

Introduction
The relationship of Banking sector development and poverty reduction in Pakistan has an

extensive and inconclusive empirical and theoretical literature (Uddin et al., 2013, p.305).
Ahamada and Coulibaly (2011) instigated as how financial development is beneficial for
economic growth volatility. The impact of increasing the rate of volatility in emerging economies
is reducing the rate of poverty. Although the augment in economies increases the demand of
financial services but influences the financial growth. Furthermore, a recipient account might
make them reasonable for bank loan and hence it expands the credit market size (Sami, 2013,
p.503). Financial sector is an essential growth aspect and it plays role in the form of fast payment
services, improved remittance services and many other branches in several fields like business
that dwindle transaction cost and goods between household, hence it can help to promote
economic growth (Khan et al., 2011, p.60).

2.2.

Economic Growth
The increase of per capita gross domestic product (GDP) or other measurements of

aggregate income is referred as economic growth. To evaluate economic growth, the rate of
change in real GDP is calculated. Economic growth is only considered to be the production of
goods and services. Economic growth is both; positive and negative. Negative economic growth
is when the economy is shrinking. It is the economic recession or depression (Lewis, 2013, p.23).
Domestic resources are considered to be the significant component for economic growth
and reduce poverty. There are no second thoughts on the role that financial development and

Banking Development and Poverty7

banking sector are playing in improvement of economy. Consequently a well-functioning and
influential banking sector is effective on economic growth. According to (Shahbaz,
Afza&Shabbir, 2013, p.60), Pakistans financial sector has changed its dynamics after grasping
the importance of strong banking and effective financial markets. Economic growth is optimized
by financial development through mobilization and investment activities and this positive
relationship amongst financial development and economic growth reduces poverty through
growth improving impact.
As Shahbaz&Rehman (2013) research concludes that economic growth and poverty
reduction are present in Pakistan. The increase in financial development is because of the high
demand in financial services and it is said to have a demand-side impact. The utilization of
domestic resources is dynamic for economic growth through the financial development. Due to
low economy in Pakistan, Income inequality and poverty were elated in the decades of 1980s
and 1990s. Whereas; Pakistan is recorded to be have the second highest economic growth rate in
2005, in South Asia. According to Uddin, Kyophilavong&Sydee (2012, p. 306), financial
development has an indirect impact on the living standards of poor. According to World Bank
(2004), the average economic growth Pakistan made was 3% in 1980s and 1.2% in 1990s. The
sluggish growth steadied in the later 1990s that led to an increase in poverty incident.

2.3.

Financial Development
Financial sector development established because of an important mechanism as that is

beneficial for economic growth. The financial development has a crucial part to play with in
alleviation of poverty for developing countries like Pakistan (Ellahi, 2011). Financial
development is associated with the financial instability where poor are not benefitted from the

Banking Development and Poverty8

greater availability of credit. Many researches have outlined the direct relation of financial
growth with poverty while the indirect relationship with economic growth (Inoue &Hamori,
2010, p.1).
Financial development is a huge and multidimensional concept and consists of a
potentially significant phenomenon for a long-run economic growth. Numerous studies have
bolstered the interrelationship between financial advancement and poverty experimentally and
theoretically (Sami, 2013; Shahbaz&Rahman, 2013; Ellahi 2011). The empirical evidence
received from these studies varying from country to country, includes industry-level analysis,
each country analysis and broad cross-country comparison. It highlights that there is a vital role
that financial development is playing in economic growth. On the contrary, financial
development is essential and basic requirement for economic growth. Due to the implications
that are not accurate, it affects the other factors of socio-economic development in the economy
(Pradhan, 2010, p.115). By experimenting and evaluating, the financial institutes and exerting
corporate control can stimulate growth and increase the capital accumulation that would result in
ultimate poverty reduction (Khan et al., 2011, p.60).
The financial institutes are basically the organizations that are in-charge of investment,
savings, loans, assets, pensions, deposits, salaries etc. In Pakistan, the instances of which are
public/private sector banks, foreign banks, development financial institutes (DFIs), investment
banks, microfinance banks, specialized banks and Islamic banks (Ibrar, 2013).

2.4.

Banking Sector Development

The banking sector in Pakistan is continually emerging from sliding interest rate reign to

skin spreads while pressurizing profits. Alongside healthy transactions and increased non-

Banking Development and Poverty9

markup revenue has stabilized production. The divisions related pricing compared to KSE is
over-playing the fears of spreads. It has been noticed that the current development that provides
the perfect current interest rate ().
Pakistan has implemented successful financial reforms with the help of banking sector in
the last decade and the banking sector has gone through some experimental and fundamental
changes in three phases. The first reform was a World Bank initiative and supported by Banking
Sector Adjustment Loan (BSAL). The reforms are reported to have attained a complete new
environment for the banking sector.
More investment, more production and more production first increase the growth level
then decrease the poverty level; it is indirect impact of banking sector on poverty reduction
(Inuoe&Hamori, 2010, p.1). As Noman and Uddin (2011) investigated the casual nexus between
remittances, banking sector development and GDP in four South Asian of countries (Pakistan,
India, Bangladesh, and Sri Lanka) depending on individual country time series analysis and
studied that the banking sector Granger remittances inflow in Pakistan and India.
Banking sector development program is implemented in Pakistan on terms of 35-year
maturity. According to World Bank (2004), Pakistan has achieved progress in in banking sector
reform, after its own program launch in 1997. The overall program assessment and its findings
were effective in order to stabilize the macro economy while providing the essential financial
sector recovery. According to Imran & Khalil (2012, 568), apart from the conventional banking,
microfinance is another network with which the financial sector provide loans for low-level
businesses or to micro organizations that end up destroying firms growth.

Banking Development and Poverty10

2.5.

Poverty Reduction
Poverty is referred as the capacity to buy the product or services depending on

consumption and income on assets or material possessions. In 1990s poverty reduction and the
poorest have been the purpose of attraction at international summit according to Canadian
International Development Agency (CIDA). Reduction of poverty can be determined in order to
provide credit to businesses of financial intermediaries by creating more jobs through industry
growth (Imran & Khalil, 2012, p.568).
Pakistan has been a developing economy considering the poverty trends based on crosssectional datasets. Poverty dynamics can be classified as chronic poverty and transitory
(Arif&Farooq, 2011, p.1). According to Shafiq et al. (2012), Poverty has been the biggest of
issues in Pakistan. His study is about the relation between poverty alleviation and economic
growth where the time period of 1978 to 2010 was analyzed. His research suggested that there is
a negative impact on poverty but it contributes to poverty reduction in a long-run. There is a
close relationship between finance and growth and that nexus is contributing as an emerging
body that analyses the effects of financial development on both; poverty conditions and income
distribution. A few researches have explored the association between financial growth embedded
in poverty ratio using cross country data and private credit exist for more than 70 developing
countries. The findings resulted in negative association with the poverty ratio after optimizing
the income, inflation rate and the income share of top 10% (Inoue &Hamori, 2010, p.2).

2.6.

Relationship between Banking Sector development and Poverty Reduction

In the last decade, there are a number of researches that established an indirect nexus

between financial development and poverty with the help of government intervention.

Banking Development and Poverty11

Government intervention in order to advance financial policies especially credit market policies
that are in favor of appropriate on subsidized rates of interest, which implies that financial
liberation, needs to be adjusted. Because of the economic benefits, we can trickle down the to a
lesser income group and eventually reduce poverty (Khan et al., 2011, p.60).
The economic literature specializing in the casual nexus between the poverty reduction
and financial system establishes the belief that most of the researchers are actually worried about
poverty and so and so that they study the impact of financial development on poverty reduction.
The direct effect is essay to understand and study but the indirect change is not that easy to go
through for instance different channels might be affecting poverty reduction like credit, savings,
income inequality and insurance services (Dhrifi, 2014, p.1).
The relationship has been widely researched and discussed as there is a lot of discussion
available about the relationship of financial liberation and economic growth. According to the
literature, a robust relationship has been observed. It is also evident due to the financial policies;
countries with open financial policies have the potential to grow faster than that of restricted
financial policies (Munir, Chaudhry&Akhtar, 2013, p.227).

2.7.

Research Hypothesis

H1: Banking development has direct relation with poverty reduction

H2: There is long term equilibrium between banking sector development and poverty
reduction in Pakistan.

Banking Development and Poverty12

CHAPTER 3: METHODOLOGY

3.1.

Methods of Data Collection

In general there are two different types of data collection method i.e. (1) Primary Data

collection and (2) Secondary Data Collection. The primary data collection method is referred as
the collection of first-hand information which has not been collected before by any researcher or
publications. Some important tools for primary data collection are (a) Interviews, (b) Surveys, (c)
Focus group and (d) Observations. On the other hand, secondary data collection refers to that
information which has already been researched and is known as second hand information. Some
techniques of collecting secondary data collection are through research publications, research
papers, companys annual reports, economic survey reports and newsletters (Galvao et.al, 2013,
p. 307).
The current research has adapted secondary data collection method because of the nature
of the study being conducted. The data will be collected from World Bank and economic survey
website of Pakistan. The basic advantage of secondary data is that it allows the researcher in
collecting meaningful information which can be large thus providing authentic and reliable data
for carrying out the analysis.

3.2.

Sampling Technique
Time series is defined as an arrangement of data points, particularly involving successive

measurement developed through different time intervals. The time series analysis includes
different methods and processes for the purpose of examining time series data to get meaningful
statistical data and other attributes of the data. Moreover, time series forecasting is the utilization

Banking Development and Poverty13

of a specific model in order to assume future values that are dependent on previously observed
values. However, regression analysis is usually used to test different theories pertaining to the
fact that present values of independent time series has a direct impact on the present value of a
different time series. This is not known as time series analysis, as time series aims on comparing
single time series values and multiple dependent time series at various different points(Chavez
and Davison, 2012, p.111).

3.3.

Sample Size
The sample collected was from World Bank and Economic survey of Pakistan. Data was

collected annually from 1980-2010, thus having 30 observations in total.

3.4.

Statistical Technique
In a situation where the research variable in long term relation of interest are assumed

stationary, the usual practice is to de-trend the series and then to de-trend the series to a specific
model as autoregressive distributed lag (ARDL) or stationary distributed lag. The regressors may
incorporate lagged values pertaining to dependent variable and lagged and current values of
more than two explanatory variables. The ARDL model enables the researcher in measure the
effect due to the change in policy variable (Ritchie, 2013, p. 36).

3.5.

Research Model
The research model is based on Autoregressive Distributed Lag (ARDL) or Stationary

Distributed Lag. The equation for ARDL is:

Banking Development and Poverty14

p

i 1

i 1

i 1

i 1

LPOVt c1 1trend 1 LPOVt 1 2 LDCPt 1 i LPOVt i i LDCPt i u1t

LDCPt c 2 2 trend 1 LDCPt 1 2 LPOVt 1 i LDCPt i i LPOVt i u 2t

Where,

= First difference operator

LDCP= domestic credit to private sector

LPOV= poverty reduction

c1 ,c 2

= constant

1 , 2

= coefficient on trend term

1, 2
= coefficient on the lagged level of the dependent and independent variable

i
= coefficient on the lagged dependent variable

i
=coefficient on the lagged independent variable

u1 ,u 2
= error term
P = signifies the maximum lag length

Banking Development and Poverty15

CHAPTER FOUR: ANALYSIS AND DISCUSSION

4.1. Overview
Chapter four of this study comprises of analysis and findings from secondary data
collected. The data is collected from World Bank and economic survey website of Pakistan. The
researcher has utilized meaningful information for the purpose of research. The study aimed to
understand and evaluate the impact of banking sector development on poverty reduction.

4.2. Time Series Analysis

For the purpose of this research data from 1980-2010 was collected annually from World
Bank and Economic Survey of Pakistan. Data was analysed using statistical software E-views
that was used to test various variables. These tests were useful in forecasting future values based
on the past data. As research variable in long term relation are stationary, autoregressive
distributed lag (ARDL), model is used after de-trending of variables.

4.3. Output from Eviews

Null Hypothesis: PAK_PER has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=5)

Augmented Dickey-Fuller test statistic

Test critical values: 1% level
5% level
10% level
*MacKinnon (1996) one-sided p-values.

t-Statistic

Prob.*

-0.534955
-3.737853
-2.991878
-2.635542

0.8675

Banking Development and Poverty16

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(PAK_PER)
Method: Least Squares
Date: 04/17/14 Time: 16:30
Sample (adjusted): 1987 2010
Included observations: 24 after adjustments
Variable

Coefficient Std. Error

t-Statistic

PAK_PER(-1)
C

-0.038304 0.071603
20.97676 27.01839

-0.534955 0.5980
0.776388 0.4458

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.012841
-0.032030
17.44119
6692.294
-101.6224
0.286177
0.598047

Null Hypothesis:

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Prob.

6.649167
17.16841
8.635202
8.733373
8.661247
2.515456

Ho: = 0
(I.e. the needs to be different to make it stationary)

Alternative Hypothesis:

H1: < 0
(I.e. the data is stationary and does not need to be differenced)

From the results of E-views regression analysis, it can be observed that null is coefficient
on PAK_PER (-1) is negative or approximately zero, which mean that there is a unit root.
Alternative hypothesis is less than zero, which means no unit root.

Banking Development and Poverty17

4.4. Interpretation 1
From the above table obtained from E-views, represent the results obtained from
augmented Dickey-Fuller Statistics. To test the hypothesis, level of significance = 0.05 is
considered. Results from Augmented Dickey Fuller Statistics are -0.5439, which is greater than
critical value -2.9918, at 5% level of significance. Therefore, we cannot reject the presence of
unit root, confirmed by approximate p-value for z (t) = 0.8675. To reject the null at 10 %,
p<=0.10 (test statistic should be less than -2.6355), to reject the null at 5% (test statistic should
be less than-2.9918) p<=0.05, and to reject the null at 1 %,( test statistic should be less than3.7378) p<=0.01.

Null Hypothesis: D(PAK_PER) has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=5)

Augmented Dickey-Fuller test statistic

Test critical values: 1% level
5% level
10% level

t-Statistic

Prob.*

-6.399386
-3.752946
-2.998064
-2.638752

0.0000

t-Statistic

Prob.

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation
Dependent Variable: D(PAK_PER,2)
Method: Least Squares
Date: 04/17/14 Time: 16:30
Sample (adjusted): 1988 2010
Included observations: 23 after adjustments
Variable

Coefficient Std. Error

Banking Development and Poverty18

D(PAK_PER(-1))
C

-1.362859 0.212967
9.694089 3.862668

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.661029
0.644887
16.79238
5921.667
-96.47070
40.95214
0.000002

Null Hypothesis:

-6.399386 0.0000
2.509687 0.0203

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

-0.743043
28.17923
8.562669
8.661408
8.587502
1.909316

Ho: = 0
(I.e. the needs to be different to make it stationary)

Alternative Hypothesis:

H1: < 0
(I.e. the data is stationary and does not need to be differenced)

Hypothesis is tested using the results obtained from E-views regression analysis; it can be
observed that null is coefficient should be zero, which means that there is a unit root. Alternative
hypothesis is less than zero, which means no unit root.

4.5. Interpretation 2
From the above table obtained from E-views, represent the results obtained from
augmented Dickey-Fuller Statistics. To test the hypothesis, level of significance = 0.05 is
considered. Results from Augmented Dickey Fuller Statistics are -6.3993, which is lower than
critical value -2.9980, at 5% level of significance. Therefore, we cannot accept the presence of
unit root, confirmed by approximate p-value for z (t) = 0.000. To reject the null at 10 %,

Banking Development and Poverty19

p<=0.10 (test statistic should be less than -2.6387), to reject the null at 5% (test statistic should
be less than-2.9980) p<=0.05, and to reject the null at 1 %,( test statistic should be less than3.7529) p<=0.01.
Vector Autoregression Estimates
Date: 04/17/14 Time: 16:31
Sample (adjusted): 1988 2010
Included observations: 23 after adjustments
Standard errors in ( ) & t-statistics in [ ]
PAK_PER

PAK_BANK

PAK_PER(-1)

0.584032
(0.19862)
[ 2.94041]

0.012276
(0.02320)
[ 0.52924]

PAK_PER(-2)

0.370196
(0.20690)
[ 1.78922]

-0.009493
(0.02416)
[-0.39286]

PAK_BANK(-1)

5.036928
(1.83511)
[ 2.74475]

1.038300
(0.21431)
[ 4.84494]

PAK_BANK(-2)

-2.983277
(1.74801)
[-1.70667]

-0.512719
(0.20413)
[-2.51167]

-24.10537
(37.3688)
[-0.64507]

10.74400
(4.36397)
[ 2.46198]

R-squared
Adj. R-squared
Sum sq. resids
S.E. equation
F-statistic
Log likelihood
Akaike AIC
Schwarz SC
Mean dependent
S.D. dependent

0.924959
0.908283
4172.620
15.22538
55.46732
-92.44485
8.473465
8.720311
383.9813
50.27408

0.607259
0.519983
56.90537
1.778035
6.957925
-43.05338
4.178555
4.425402
25.01565
2.566327

Determinant resid covariance (dof 732.7634

Banking Development and Poverty20

adj.)
Determinant resid covariance
Log likelihood
Akaike information criterion
Schwarz criterion

448.8003
-135.4968
12.65190
13.14559

Considering the fact that longer lags were utilized in Dickey-Fuller regression, likelihood
of vector auto regression having longer lags is higher. The results obtained from auto regression
estimates, describes that the coefficients on st1 and f pt1 in both equations are statistically
significant at the 10% level and that the fit for the fp t equation is much better than the fit for the
st equation. Output obtained from E-views for auto regression estimates also mentions the
coefficient standard errors and t-statistics, summary also displays R-squared measures for each
equation (which are valid because each equation estimates are obtained from least square).

Banking Development and Poverty21

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Ahamada, I., &Coulibaly, D. (2011). How does financial development influence the impact of
remittances on growth volatility?.Economic modelling, 28(6), 2748-2760.
Arif, G. M., &Farooq, S. (2014). Rural Poverty Dynamics in Pakistan: Evidence from Three
Waves of the Panel Survey. Pakistan Development Review, 53(1), 1-28.
Chavez-Demoulin, V., & Davison, A. C. (2012).Modelling time series extremes. REVSTATStatistical Journal, 10(EPFL-ARTICLE-180506), 109-133
Dhrifi,

A.

(2014).

Financial

Development

and

the"

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