Globalization and Economic Development in Pakistan

By Uz-Zaman, Khair; Aman, Qaiser | Indian Journal of Economics and Business, December 2007 | Go to article overview

Globalization and Economic Development in Pakistan


Uz-Zaman, Khair, Aman, Qaiser, Indian Journal of Economics and Business


Abstract

This paper explores the impact of globalization on the pace of economic development in Pakistan over the period from 1970-2006 by using the simple Error Correction Model (ECM). To check the stationarity in the level of data, we applied Augmented Dickey Fuller Test. We find that globalization has positive impact on economic development of Pakistan. For measurement of economic development we have taken Per Capita Income (Yt) as dependent variable and globalization (OPEN, DFI, FD, and PS) as independent variables. All explanatory variables are statistically significant with expected signs. In the light of empirical analysis of data and research findings it is imperative for Pakistan to concentrate more on exports, attract direct foreign investment and also to maintain political stability in the country. These are the crucial variables of globalization for economic development in Pakistan.

Keywords: globalization, Foreign Direct Investment, Financial Depth, Political Stability and Economic Development

I. INTRODUCTION

Globalization, with its wide implications, can be discussed in various perspectives, such as socio-cultural political and economics. Economists define it as the free movement of goods, services, labor and capital across borders. World Bank defines globalization as "Freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries" (Milanovic, B 2002).

Economic globalization is characterized by increased trade and investment, liberalization (free trade), privatization of public services and de-regulation of many government institutions. Economic globalization is also associated with increasing disparities in wealth and power both between nations and between different groups within nations as well as between public and private sectors. Environmental globalization recognizes that an environmental incident or impact that happens in one region or country is not restricted to that area but has the potential to affect the entire world's health and well being.

Similarly, communicative globalization refers to the rapid growth of communication technologies such as internet, telephone, cellular phone, satellite and so on. Capacity to link people, information and ideas around the globe impact on culture, both positively and negatively.

In recent years, theoretical research on the link between globalization and world inequality and poverty has been of great interest among economists. However, comprehensive analysis of the link at the empirical level is still scarce. Globalization is expected to reduce poverty through faster growth in more integrated economies. Despite the great importance placed in the recent decade on the globalization process, its sources, channels and consequences remain poorly understood. The channels through which globalization affects world inequality have been identified as commodity price equalization, factor price convergence, capital mobility and differentials in marginal products and rates of return of capital among countries, and dynamic convergence of per capita income growth (Heshmati, A 2005).

Privatization is a prerequisite for globalization and goes side by side with it. Nowadays the term globalization has gained significance in all parts of the world. Globalization may have positive or negative impact on developing countries. However, the developing nations can survive thrive by adaptation to the process of globalization by public policy readjustment for privatization, liberalization and deregulation.

The recent wave of financial globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing countries. A number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, that crises have exacted a serious toll in terms of macroeconomic and social costs. …

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