Mehmood Khan KAKAR*, Tariq MAHMOOD** and Sadaf SHAHAB**
This study utilizes concepts of super-exogeneity and control causality to examine the causal relationship between financial deepening and economic growth. For the assessment, the purpose study has explored data from South Asian countries, namely Pakistan, India, Bangladesh and Sri Lanka, for the period 1980-2018. Results indicate that financial deepening causes economic growth and the reverse is also true in the case of Pakistan and Bangladesh. This study provides evidence of super-exogeneity in the case of India and Sri Lanka that economic growth causes financial deepening while the reverse does not hold. Overall, causal directions in the finance-growth nexus of sample countries are mixed. Results imply that sample economies should prioritize financial reform over growth to accelerate the pace of financial restructuring and sustainable growth.
Keywords: Control Causality, Super-Exogeneity, Financial Deepening, Economic Growth, SAARC.