FINANCIAL INTEGRATION AND ECONOMIC GROWTH: INSIGHTS FROM PAKISTAN

Abstract

This study has analyzed the association between financial integration and economic growth in Pakistan. For achieving the research objective annual dataset of the last 41 years, starting from 1981 to 2021, have been used. To examine the stationarity of series ADF unit root test has been used and on determination of mixed order of integration Autoregressive Distributed Lag Model has been used because the bound testing results have confirmed the presence of long run relationship among the variables. The results of study have shown that in the long run there is a significant inverse relationship among financial integration and economic growth in Pakistan because of reliance on external debts instead of investment inflows. Other explanatory variables have shown expected theoretical relationship with economic growth in Pakistan. The stability of parameters has been checked by Residual Recursive Graphs and the results have shown stability of parameters in our model.

Keywords: Financial Integration, Economic Growth, Government Expenditures, Augmented Dickey Fuller test, Autoregressive Distributed Lag Model.