Impact of Globalization on Budget Deficit, Inflation and Economic Growth: The Case of Pakistan

Abstract

Globalization is a multi-dimensional phenomena with profound impact on different aspects of the modern world including economic, social, political, cultural, environmental, and geographical. This study is an attempt to analyze the subject that how various components of globalization i.e. trade openness, financial liberalization and labor mobility impact the economic dynamics of a developing country by affecting the performance of selected macroeconomic variables including budget deficit, inflation and economic growth. In this particular research we used the terms trade openness and liberalization along with financial openness, financial liberalization and financial development interchangeably. The purpose is to capture the overall impact irrespective of the nature as considering nature would lead to contradictory results. The increasing importance of labor flow is also given due attention in this study as human capital is an inevitable avenue for the effective and sustainable growth of any country. Various global factors effect budget deficits, inflation and economic growth with varying intensities depending upon the size and dynamics of the economy. The empirical analysis involves the time series data for years 1973-2014 for the case of Pakistan. The Autoregressive distributed lag (ARDL) methodology is used to derive the results and conclusion further seconded by the policy suggestions made in the light of this study.