External Financial Liberalization and Economic Growth: The Evidence from Pakistan

Abstract

This paper examines the impact of external financial liberalization on
economic growth of Pakistan using multivariate co integration technique and
error correction mechanism. The paper in particular investigates the
external financial reform process and captures the external financial
liberalization through de facto measure. This measure is captured through
sum of foreign assets and liabilities as a ratio to GDP. While controlling for
other growth control variables, the empirical results indicate negative
impact of external financial openness on economic growth in the long run.
This result is in line with majority of the international literature evaluating
the relationship between external financial openness and economic growth
for developing countries.