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AuthorRahman, Abdul
AuthorKhan, Muhammad Arshad
AuthorCharfeddine, Lanouar
Available date2022-12-27T08:14:14Z
Publication Date2021
Publication NameJournal of Policy Modeling
ResourceScopus
URIhttp://dx.doi.org/10.1016/j.jpolmod.2020.10.006
URIhttp://hdl.handle.net/10576/37635
AbstractThis study uses and proposes a new methodological approach to construct a financial liberalization index on the basis of the dynamic factor model technique. The resulting index is used to investigate the impact of the financial sector reforms in Pakistan on economic growth. Using the Markov regime-switching model over the period 1972-2015, the empirical results showed that the examined relationship is nonlinear, nonmonotonic, state-dependent, and better described by the two-state Markov switching model characterized by the high growth regime and low growth regime. Despite the positive impact of financial liberalization on economic growth in both the high and low growth regimes, financial liberalization relatively strongly affects real GDP growth in the high growth regime. The results further demonstrate that transition probabilities establish an inordinate episode of the low growth regime. Furthermore, the high growth regime is relatively short-lived than the low growth regime. Among the other variables, trade openness and physical capital stock have a positive impact on economic growth, while labor force and government expenditure exert a negative effect on economic growth. Several economic policies are proposed and discussed for better functioning of financial sector development in Pakistan. 2020 The Society for Policy Modeling
Languageen
PublisherElsevier
SubjectDynamic factor model
Financial liberalization
High and low economic growth
Markov switching model
Nonlinear relationship
TitleRegime-specific impact of financial reforms on economic growth in Pakistan
TypeArticle
Pagination161-182
Issue Number1
Volume Number43
dc.accessType Abstract Only


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