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Democracy and international financial integration in Pakistan

Syed Tehseen Jawaid (Applied Economics Research Centre, University of Karachi, Karachi, Pakistan)
Shujaat Abbas (Department of Economics, Institute of Business Management, Karachi, Pakistan)
Shaikh Muhammad Saleem (Department of Economics, Pakistan Shipowners’ College, Karachi, Pakistan)

Indian Growth and Development Review

ISSN: 1753-8254

Article publication date: 10 April 2017

488

Abstract

Purpose

The purpose of the study is to investigate the relationship between international financial integration (IFI) index and democracy (DEM) in Pakistan by using long-time series data from 1975 to 2013.

Design/methodology/approach

The IFI index is constructed by principal component analysis. IFI consists of foreign direct investment (FDI), remittances (REM) and external debt (ED), whereas the Polity IV index is used for DEM. Johansen and the autoregressive distributed lag method for cointegration methods are used to find a long run relationship. Dynamic ordinary least square (DOLS), fully modified ordinary least square (FMOLS) and canonical regression (CR) have been used to find the nature of the relationship. Rolling window analysis has been done to find the year wise coefficients.

Findings

DOLS, FMOLS, canonical regression CR and cointegration results suggest a significant negative long-run relationship between IFI and DEM in Pakistan. Rolling windows analysis highlights that DEM has improved IFI in Pakistan from 2008 to 2013.

Originality/value

This study constructs an index for financial integration using principle component analysis on capital inflows, i.e. FDI, REM, ED, to explore the impact of DEM on IFI in Pakistan from 1975 to 2013. This study investigates for the first time ever the relationship between IFI index and DEM in Pakistan.

Keywords

Citation

Jawaid, S.T., Abbas, S. and Saleem, S.M. (2017), "Democracy and international financial integration in Pakistan", Indian Growth and Development Review, Vol. 10 No. 1, pp. 16-31. https://doi.org/10.1108/IGDR-07-2016-0031

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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