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Financial development under the shade of globalization and financial institutions : the case of Pakistan

Author

Listed:
  • Muhammad Shahbaz
  • Akhtar Lodhi
  • Muhammad Sabihuddin Butt

    (Social Policy and Development Centre, Karachi, University of Karachi, Karachi)

Abstract

This study investigates the importance of financial institutions, net capital inflows, and trade openness for financial-sector development in a small developing economy like Pakistan. Two approaches (Johansen test and autoregressive distributive lag approach) were employed for the robustness of long-run relationships among the variables under consideration and found that both techniques provide robust results for long-run relationships, in Pakistan’s case. Net capital in inflows has positive impact on financial-sector development in the long run. Trade openness is the main promoter of financial development in both periods. Finally, financial institutions and economic growth also help to improve the development of the financial sector. Further, it examined Rajan and Zingales’s [2003a] hypothesis that predicts combined influence of capital account liberalization and trade openness on financial-sector development. However, such relationship does not exist in the case of Pakistan. In terms of policy implications, our findings suggest that macroeconomic management, which could simultaneously stimulate foreign capital inflows and trade openness, improves quality of financial institutions, and high economic growth in the country would enhance the performance of both capital and financial intermediaries.

Suggested Citation

  • Muhammad Shahbaz & Akhtar Lodhi & Muhammad Sabihuddin Butt, 2007. "Financial development under the shade of globalization and financial institutions : the case of Pakistan," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 44(2), pages 125-148, December.
    • Handle: RePEc:phs:prejrn:v:44:y:2007:i:2:p:125-148
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/231/635
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    Citations

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    Cited by:

    1. Madhu Sehrawat & A. Giri, 2016. "Financial development, poverty and rural-urban income inequality: evidence from South Asian countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 577-590, March.
    2. Tiwari, Aviral Kumar & Shahbaz, Muhammad, 2010. "Does financial development increase rural-urban income inequality? Cointegration analysis in the case of Indian economy," MPRA Paper 27093, University Library of Munich, Germany.
    3. Memoona Manzoor Kiani & Shain Taj Raisani & Dr. Muhammad Nabeel & Shahan Zeb Khan & Kashif Lodhi, 2023. "Impact of International Trade and Globalization on Financial Markets: A Case of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(3), pages 493-500.

    More about this item

    Keywords

    capital account liberalization; financial development; trade openness;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F10 - International Economics - - Trade - - - General

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