THE FINANCIAL LIBERALIZATION POLICY AND ITS IMPACT ON THE GROWTH OF SMALL AND MEDIUM ENTERPRISES

Abstract

The country's development is mainly concerned with the foundation of a stable economy. An efficient financial system is mandatory for the development of solid economy.  Small and Medium Enterprises (SMEs) are essential in stabilizing the economy. This is remarkably accurate in emerging economies like Pakistan. The objective of financial liberalization is to facilitate financing access and stimulate investment. However, the impact of this policy on SMEs can vary based on factors such as the regulatory framework, market structure, and institutional support. Therefore, it is crucial to assess the impact of financial liberalization on SMEs to foster inclusive economic growth and shape policy development. The study intends to find whether or not the growth of small and medium enterprises depends upon the government's financial liberalization policies. Using the ARDL econometric method, we find that Shareholder’s Equity is positively associated with SME growth rate, holding other variables constant. Moreover, total assets positively affect the SMEs' growth rate. Financial Development does not have a statistically significant effect on SME growth in the short run. Economic Growth rate positively influences SME growth. External financing changes may not immediately affect SME growth in the short run. The results show that changes in the number of bank branches do not significantly affect SME growth in the short run.