This paper is an attempt to test the openness hypothesis
for the case of Pakistan. Being a developing country and
having different interest groups interfering in the financial market,
openness hypothesis provides a theory that provides a win-win situation
for the interest groups, consequently improving financial development.
We presented a political economy approach of analyzing the state of
Pakistans financial market and proposed an openness hypothesis. Our
result indicates that individually, trade and financial opening are beneficial
for improving the financial market development however, the
simultaneous opening of financial and trade hypothesis does not hold for
Pakistan. In other words, the simultaneous opening of financial and trade
accounts does not seem to be a necessary condition for improving the
1-Jawad Ahmad: Research Associate, University of Kassel, Hessen, Germany.2-Sania Zehraa: Research Scholar, International Islamic University, Islamabad, Pakistan.3-Noor Jehan: Assistant Professor,Department of Economics,Abdul Wali Khan University, Mardan, KP, Pakistan.