Financial Globalization and Financial Sector Effectiveness: An Indexed based Analysis for Pakistan

Nazima Ellahi; Masood Anwar; Adiqa Kausar Kiani; James Estes

Abstract:

This paper tried to assess the nature of relationship between financial sector openness and financial sector deepening for Pakistan. The study utilized data set of annual frequency on financial sector openness index, institutional quality index, trade openness and a set of control variables over a period from 1995 to 2018. The application of econometric method of Autoregressive Distributed Lag Model (ARDL) confirmed the extensively debated long run association, and after having established this, found the estimates (both short run and long run). Results demonstrated that financial openness and institutional quality improve the quality of financial sector efficiency in Pakistan for short run; however, in the long run financial openness did not lead financial sector development. These findings indicate that policies promote financial sector openness appear to help Pakistan to derive the benefits of quality of financial sector efficiency. Our analysis suggests that there are unavoidable risks associated with financial sector openness. Therefore financial openness is not just an isolated policy goal. Along with institutional quality sounds macroeconomics framework is an essential prerequisite for making sure that financial development is beneficial.

research from:

• Foundation University - Faculty of Management Sciences

Year:

2019

Type of Publication:

Article

Journal:

Kashmir Economic Review

Volume:

28

Number:

2

Month:

6