Financial Development and Trade Openness Economic Growth Nexuses in Pakistan: Evidence from ARDL Cointegration Approach

Abstract

Many studies have drawn conflicting conclusions about relationships between labour transfers, monetarily buildup, growth, and living standards in different settings, but only partially so. For this purpose, the capital and threshold conduction effects are often used to trace transmission channels for causal links. On the other hand, workers' remittances play a key role in the financial development of the economy. No study has specifically focused on the effects of worker transfers on living standards in Pakistan by monitoring the main and threshold transfer channels. Thus, there is a considerable need to explore these channels and their expansion. This study examines the effect of workers' remittances on living standards by expanding the capital conduit and threshold channels. The study scrutinizes the direct impact of financial development on living standards by tracing the threshold effect channel. Second, it channels the influence of financial development with living standards through the capital channel for GDP growth. Third, it examines the unintended effect of labour transfers on living standards by the financial development and GDP growth based on extended versions of capital leadership and threshold channels. to estimate bidirectional causal relationships between financial development and GDP growth. The data were taken for the period 1980–2020. Employing ARDL-bound (cointegration) testing, the study's results indicate a direct and indirect long and short-term relationship between worker transfers and living standards if we consider the effects of financial development and GDP growth. Furthermore, it is confirmed that the extension of the journey contributed significantly. Policymakers can use these findings to understand better worker remittances' role in developing financially sound strategies.