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Democracy and international financial integration in Pakistan

Author

Listed:
  • Syed Tehseen Jawaid
  • Shujaat Abbas
  • Shaikh Muhammad Saleem

Abstract

Purpose - The purpose of the study is to investigate the relationship between international financial integration (IFI) index and democracy (DEM) in Pakistan by using long-time series data from 1975 to 2013. Design/methodology/approach - The IFI index is constructed by principal component analysis. IFI consists of foreign direct investment (FDI), remittances (REM) and external debt (ED), whereas the Polity IV index is used for DEM. Johansen and the autoregressive distributed lag method for cointegration methods are used to find a long run relationship. Dynamic ordinary least square (DOLS), fully modified ordinary least square (FMOLS) and canonical regression (CR) have been used to find the nature of the relationship. Rolling window analysis has been done to find the year wise coefficients. Findings - DOLS, FMOLS, canonical regression CR and cointegration results suggest a significant negative long-run relationship between IFI and DEM in Pakistan. Rolling windows analysis highlights that DEM has improved IFI in Pakistan from 2008 to 2013. Originality/value - This study constructs an index for financial integration using principle component analysis on capital inflows, i.e. FDI, REM, ED, to explore the impact of DEM on IFI in Pakistan from 1975 to 2013. This study investigates for the first time ever the relationship between IFI index and DEM in Pakistan.

Suggested Citation

  • Syed Tehseen Jawaid & Shujaat Abbas & Shaikh Muhammad Saleem, 2017. "Democracy and international financial integration in Pakistan," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 10(1), pages 16-31, April.
    • Handle: RePEc:eme:igdrpp:igdr-07-2016-0031
    DOI: 10.1108/IGDR-07-2016-0031
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    Citations

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    Cited by:

    1. Saleem, 2016. "Impact of Monetary Policy on Private Investment: Evidence from Pakistan," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(2), pages 134-146, October.

    More about this item

    Keywords

    Democracy; Time series analysis; International financial integration; F3; P26; C22;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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