Article

 

Capital Account Openness and Economic Growth Nexus: the Case Study of Pakistan (p.11-33)

by

A. R. Chaudhary,

Abu Wahid,

Khalil Ahmad,

Muhammad Shahbaz,

Keywords : Capital Account Openness, Economic Growth

JEL classification : F21, F41

Abstract

The present study explores the relationship between capital account openness and economic growth in a small developing economy like Pakistan not only in long run but also in short runs. To obtain reliable interpretations, we utilized an advanced Autoregressive Distributive Lag (ARDL) technique for long run relationship and error correction model (ECM) for short run dynamics. Our findings suggest that capital account openness promotes economic growth in long run. Monotonic (Non-linear) relationship between the said variables also proves our hypotheses that a non-Linear U-shaped relationship exists between the variables. Economic growth is influenced through previous economic policies. Inflation decelerates economic growth while improvements in investment activities boost economic growth. Financial sector’s development stimulates economic growth and increase in human capital formation enhances the long run sustainable growth potential of the country.