Abstract
While emerging economies face the challenge of competing with developed nations, they are capable of catching up to the developed world. In this context, financial development and the degree of economic openness may provide better living conditions for the current generation without giving up future generations’ prosperity. Therefore, this research’s prime intention is to investigate the impact of economic openness and financial development on economic progress, employing Pakistan’s time-series data from 1975–2018. To examine the long-term association between economic openness, financial development, and economic progress, Autoregressive Distributed Lag (ARDL) cointegration tests were performed and the results present a long-term association between these variables. Findings from ARDL estimates indicate that the relationship between financial development and economic progress is significantly positive in the long term. Contrastingly, the relationship between economic openness and economic progress is significantly positive in the short term. A fully modified ordinary least square technique was applied to check the robustness of the long-term links. The Granger causality test revealed that economic progress is motivated by both economic openness and financial development in an emerging economy such as Pakistan. Thus, policies boosting financial development and economic openness are proposed to put the emerging economies on a path of sustainable economic development.
Highlights
The significance of financial development and its function in the intermediation of finance has been contentious about, as it has played a major part in economic progress over the last few decades and has assumed a prominent place in financial development.Many scholars have proposed that financial development importantly stimulates economic progress by promoting industries, investments, the distribution of loanable funds, and the accumulation of capital (Ahmad et al 2020b)
This study aims to assess the impact of economic openness and financial development on economic progress in Pakistan during 1975–2018
The findings indicate that the long-term association with deposit money bank asset (DMA) is significantly positive, showing the vanishing effect of financial development (Osei and Kim 2020)
Summary
The significance of financial development and its function in the intermediation of finance has been contentious about, as it has played a major part in economic progress over the last few decades and has assumed a prominent place in financial development. Many scholars have proposed that financial development importantly stimulates economic progress by promoting industries, investments, the distribution of loanable funds, and the accumulation of capital (Ahmad et al 2020b). They claimed that emerging countries require it to obtain well-developed capital markets. Used economic analysis to claim that financial development and economic progress obtain immense traction from each other. The nature of their interaction has remained inconclusive depending on the type of models, data, and empirical methodologies used to assess it.
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