Impact of Financial Intermediation on Micro and Macro Level Growth in an Emerging Economy: An Analytical Study from Pakistan

1 Chapter 01 . 3 Introduction . 3 1.1 The Financial System. 3 1.2 The Savings and Investment Mechanism . 3 1.3 The Intermediated Flow of Funds – Financial Intermediation . 4 1.4 Growth Facilitated by Financial System . 5 1.5 Qualitative Asset Transformation facilitated by Financial Intermediaries . 6 1.6 Research Questions . 7 1.7 Research Objectives . 8 1.8 Significance of Research. 9 1.9 Scope of the study . 11 1.10 Scheme of the Study . 12 Chapter 02 . 13 Review of Literature . 13 2.1 Growth and Financial Intermediation . 13 2.2 Functions of Financial Intermediation . 28 2.2.1 Reduction of Transaction Costs . 30 2. 2.2 Liquidity Provision.32 2.2.3 Information Provision . 35 2.2.4 Delegated Monitoring . 39 2.3 Financial Intermediation and Industrial Growth . 45 2.4 Financial Intermediation and Economic Growth . 47 Chapter 03 . 68 Data Description and Methodology . 68 3.1 Firm Level Data Description.68 3.2 Firm Level Variables and Equations for Testing . 69 3.2.1 Transaction Cost Function . 70 xi 3.2.2 Liquidity Assurance Function . 70 3.2.3 Delegated Monitoring Function . 71 3.2.4 Information Sharing Function . 71 3.2. 5 Firm Growth . 72 3.3 Statistical and Econometric Tests for Firm Level with their Significance . 75 3.4 Industry Level Data Description and Statistical Equations for Testing . 75 3.5 Macro Economic Level Data Description, Variables and Statistical Equations for Testing Macro Level Variables . 77 Chapter 04 . 81 Results and Discussions . 81 4.1 Descriptive Statistics . 81 4.2 Correlation Matrix . 83 4.3 Firm Level Analysis Company Wise Panel Data Results . 87 4.3.1 Company Wise Panel Common Effect Model . 87 4.3.2 Company Wise Panel Fixed Effect Testing . 89 4.3.3 Company Wise Panel Hausman Test . 91 4.4 Industry Level Analysis Industry Wise Panel Data Results . 91 4.4.1 Industry Wise Panel Fixed Effect Testing . 91 4.4.2 Industry Wise Panel Hausman Test . 93 4.5 Difference of Impact of Financial Intermediation Functions across different Industries . 93 4.5. 1 Reference Industry: Auto Parts Industry . 95 4.5. 2 Reference Industry: Chemicals Industry . 96 4.5. 3 Reference Industry: Construction Industry . 97 4.5. 4 Reference Industry: Electricity Industry . 98 4.5. 5 Reference Industry: Electronics Industry . 102 4.5. 6 Reference Industry: Engineering Industry . 103 4.5. 7 Reference Industry: Fixed Line Communications Industry . 104 4.5. 8 Reference Industry: Industrial Metals & Mining Industry. 105 4.5. 9 Reference Industry: Industrial Transportation Industry . 108 4.5. 10 Reference Industry: Paper & Board Industry . 109 4.5. 11 Reference Industry: Tobacco Industry . 110 4.5. 12 Reference Industry: Pharmaceuticals Industry . 110 4.5. 13 Reference Industry: Oil & Gas Industry . 113 4.5. 14 Reference Industry: Food Industry . 114 4.5. 15 Reference Industry: Textile Industry . 115 4.6 Moderating Effect of Financial Intermediation Functions across Different Industries using Interactive Terms . 117 4.6. 1 Reference Industry: Auto Parts Industry . 118 4.6. 2 Reference Industry: Chemicals Industry . 119 4.6. 3 Reference Industry: Construction Industry . 120 4.6. 4 Reference Industry: Electricity Industry . 121 4.6. 5 Reference Industry: Electronics Industry . 125 4.6. 6 Reference Industry: Engineering Industry . 125 xii 4.6. 7 Reference Industry: Fixed Line Communications Industry . 127 4.6. 8 Reference Industry: Industrial Metals & Mining Industry.