Fiscal policy uncertainty and economic growth in Pakistan: Role of financial development indicators

The macro-economic uncertainty has been considered crucial for economic growth in developing countries. hypothetically,it threatens economic growth through its bearing on the investment pattern and future policy options. however,the financial sector development is expected to moderate the adverse effects of these uncertainties on the economic growth and can lead to fairly stable policy choices. this paper examines the relationship between fiscal policy uncertainty and economic growth along with coherent input from financial sector development in pakistan for the period of 1970-2011,employing auto-regressive distributed lag (ardl) approach to cointegration. the findings suggest that fiscal policy instability on account of government expenditures,revenues generation and budget uncertainty have been abating the economic growth significantly in pakistan. however,the relevance of financial development indicators as ratio of liquid liabilities and credit to private sector proved to be supportive in minimizing the said effect. hence,the financial development should be promoted being pertinent in rendering high economic growth by offsetting the detrimental effects of fiscal policy uncertainties. © 2017,statistical economic and social research and training centre for islamic countries. all rights reserved.