Does International Financial Integration Spur Economic Growth? Evidence from Pakistan

Research Article

The degree of international financial integration has seen a drastic change recently, especially during the last two decades. This study attempts to explore the relationship between international financial integration and economic growth in the context of Pakistan through a sample of data from 1975 to 2013 using time series analysis. International financial integration is used as an index that comprises foreign direct investment, remittances, and external debts. The results indicate that international financial integration has a significant and negative effect on economic growth. Cointegration results have found a significant and long run relationship, whereas variance decomposition method shows bidirectional causal relationship. The sensitivity analysis proves that the initial result is robust through fully modified ordinary least square method, while Cusum and Cusum of square proves stability of coefficients over a long period.

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