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Trade,Financial and Growth Nexus in Pakistan

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  • Arshad Khan, Muhammad
  • Qayyum, Abdul

Abstract

This paper empirically investigates the impact of trade and financial liberalization 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 liberalization policies play an important role in nhancing economic growth in Pakistan in the long-run. However, the short-run responses of real deposit rate and trade policy variables are very low, suggesting further acceleration of 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 University Library of Munich, Germany in its series MPRA Paper with number 6523.

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Date of creation: Dec 2007
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Publication status: Published in Economic Analysis Working Papers 14.6(2007): pp. 1-24
Handle: RePEc:pra:mprapa:6523

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Keywords: Trade Liberalization; Financial Development; Economic Growth; Bound Test;

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References

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  1. Anwar, Tilat, 2002. "Impact of Globalization and Liberalization on Growth, Employment and Poverty: A Case Study of Pakistan," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Pablo Emilio Guidotti & Jose De Gregorio, 1992. "Financial Development and Economic Growth," IMF Working Papers 92/101, International Monetary Fund.
  3. Solomon Tadesse, 2001. "Financial Architecture and Economic Performance: International Evidence," William Davidson Institute Working Papers Series 449, William Davidson Institute at the University of Michigan.
  4. Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, vol. 35(4), pages 971-1001, May.
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  6. Bushra Yasmin & Zainab Jehan & Muhammad Ali Chaudhary, 2006. "Trade Liberalization and Economic Development: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 11(1), pages 19-34, Jan-Jun.
  7. Jahangir Aziz & Christoph Duenwald, 2002. "Growth-Financial Intermediation Nexus in China," IMF Working Papers 02/194, International Monetary Fund.
  8. Mohsin S. Khan & A. Senhadji Semlali, 2000. "Financial Development and Economic Growth," IMF Working Papers 00/209, International Monetary Fund.
  9. Kelly, Roger & Mavrotas, George, 2003. "Financial Sector Development - Futile or Fruitful? An Examination of the Determinants of Savings in Sri Lanka," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  11. David Bernstein, 2000. "To what degree do central banks sterilize the effects of capital flows on domestic money supply?," Applied Economics Letters, Taylor & Francis Journals, vol. 7(1), pages 15-19.
  12. Roubini, N. & Sala-I-Martin, X., 1991. "Financial development , the Trade Regime and Economic Growth," Papers 646, Yale - Economic Growth Center.
  13. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
  14. Fase, M. M. G. & Abma, R. C. N., 2003. "Financial environment and economic growth in selected Asian countries," Journal of Asian Economics, Elsevier, vol. 14(1), pages 11-21, February.
  15. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
  16. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  17. Jong-Wha Lee, 1992. "International Trade, Distortions and Long-Run Economic Growth," IMF Working Papers 92/90, International Monetary Fund.
  18. Bahmani-Oskooee, Mohsen & Bohl, Martin T., 2000. "German monetary unification and the stability of the German M3 money demand function," Economics Letters, Elsevier, vol. 66(2), pages 203-208, February.
  19. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  20. Batra, Ravi, 1992. "The Fallacy of Free Trade," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 19-31, November.
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Citations

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Cited by:
  1. Rashid Amjad Chaudhry & Musleh ud Din & Abdul Qayyum, 2011. "Pakistan: Breaking Out of Stagflation into Sustained Growth," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 13-30, September.
  2. Qayyum, Abdul, 2008. "Does Monetary Policy Play Effective Role in Controlling Inflation in Pakistan," MPRA Paper 13080, University Library of Munich, Germany.
  3. Zaman, Khalid & Izhar, Zeeshan & Khan, Muhammad Mushtaq & Ahmad, Mehboob, 2012. "The relationship between financial indicators and human development in Pakistan," Economic Modelling, Elsevier, vol. 29(5), pages 1515-1523.
  4. Alia, Didier & Chassem Tchatchum, Nacisse Palissy, 2009. "Commerce, finance et croissance économique au Cameroun
    [Commerce, finance and economics growth in Cameroun]
    ," MPRA Paper 17737, University Library of Munich, Germany.
  5. Shahbaz, Muhammad & Ur Rehman, Ijaz, 2013. "Multivariate–Based Granger Causality between Financial Deepening and Poverty: The Case of Pakistan," MPRA Paper 50834, University Library of Munich, Germany, revised 20 Oct 2013.

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