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Trade Liberalisation, Financial Development and Economic Growth

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  • Muhammad Arshad Khan

    (PIDE)

  • Abdul Qayyum

Abstract

This paper empirically investigates the impact of trade and financial liberalisation on economic growth in Pakistan using annual observations over the period 1961-2005. The analysis is based on the bound testing approach of cointegration advanced by Pesaran, et al. (2001). The empirical findings suggest that both trade and financial policies play an important role in enhancing economic growth in Pakistan in the long-run. However, the short-run responses of the real deposit rate and trade policy variables are very low, suggesting further acceleration of the reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated equation remains stable over the period of study as indicated by CUSUM and CUSUMQ stability tests.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22204.

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Date of creation: Jan 2007
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Handle: RePEc:eab:tradew:22204

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Keywords: Trade Liberalisation; financial development; economic growth; Bound Test;

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Cited by:
  1. Roza Hazli Zakaria & Abdul Ghafar Ismail, 2008. "Does Islamic banks' securitization involvement restrain their financing activity?," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, Emerald Group Publishing, vol. 24(2), pages 95-109, May.
  2. Qazi Hye, 2012. "Long term effect of trade openness on economic growth in case of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, Springer, vol. 46(4), pages 1137-1149, June.
  3. Shahbaz, Muhammad, 2012. "Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan," Economic Modelling, Elsevier, Elsevier, vol. 29(6), pages 2325-2339.
  4. Matthew McCartney, 2011. "Pakistan, Growth, Dependency, and Crisis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 71-94, September.

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