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Does Globalization Affect Economic Growth? The Role of Financial Development and Capital Use in Pakistan

Muhammad Shahbaz (), Naceur Khraief (), Ijaz Ur Rehman and Khair Uz Zaman
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Ijaz Ur Rehman: University of Malaya, Kuala Lumpur, Malaysia.
Khair Uz Zaman: COMSATS Institute of Information Technology, Pakistan.

International Journal of Economics and Empirical Research (IJEER), 2016, vol. 4, issue 8, 430-449

Abstract: Purpose: This paper explores the relationship between globalization and economic growth by incorporating financial development, capital use and labor in production function. The study period is 1972-2013 in case of Pakistan. Methodology: We use instability tests newly suggested by Kejriwal and Perron (2008, 2010) as well as the cointegration tests proposed in Arai and Kurozumi (2007) and extended by Kejriwal (2008). Findings: We find that cointegration is present among the series and there is some evidence of instability in cointegrating relationships. Financial development increases economic growth. Capital use adds in economic growth. Labor stimulates economic growth. Globalization (economic, social and political) spurs economic growth. The causality test indicates that globalization Granger causes economic growth. Furthermore, the results of KejriwalPerron tests suggest two breaks at 1976 and 2006 and three regimes. Recommendations: Policy recommendations have been provided.

Keywords: Globalization; Financial Development; Capital; Economic Growth (search for similar items in EconPapers)
JEL-codes: E1 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:ijr:journl:v:4:y:2016:i:8:p:430-449