Implications of Political Stability and Financial innovations for Sectoral Economic Growth of Pakistan
Keywords:
Political Stability, Financial Development, Economic Growth.
Abstract
The economic status of a country plays an important role in the lives of the citizens of both developed and developing countries. With the rapid increase in population, every country is trying to find new ways to boost its growth rate so that it may elicit the maximum number of people from poverty and can compare other countries in the form of improvement. The main objective of the study is to empirically investigate the impact of political stability and financial innovations on economic growth. Furthermore, the study also analyzes the impact of subsectors (Agricultural, Industry, and Services) of the economy on growth. A time-series co-integration autoregressive distributed lag (ARDL) model is used to investigate the general to specific sector's growth. The key empirical finding shows that political stability and financial development has a positive and significant impact on economic growth as well as its sub-sectors in the long-run. Trade liberalization has a positive impact on economic growth but most surprising results have been witnessed in agriculture growth for Pakistan.
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References
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Shahbaz, M., Khalil, A., & A. R. Chaudhary, (2008). Economic Growth and Its Determinants in Pakistan. The Pakistan Development Review, 47(4), 471-486.
Shittu, A. I. (2012). Financial intermediation and economic growth in Nigeria. British Journal of Arts and Social Sciences, 4(2), 164-179.
Tabassam, A. H., Hashmi, S. H., & Rehman, F. U. (2016). Nexus between political instability and economic growth in Pakistan. Procedia-Social and Behavioral Sciences, 230, 325-334.
Wachter, J.A. (2006) Comment on: Can financial innovation help to explain the reduced volatility of economic activity? Journal of Monetary Economics, 53, 151–154.
Weede, E. (1996). Political regime type and variation in economic growth rates. Constitutional political economy, 7(3), 167-176.
Zahra, T., Waheed, A., Mahmood, H., & Rafique. M. A. (2017). Impact of political instability on financial development of Pakistan. International Journal of Management Sciences and Business Research, 6(4), 1–13.
Zaidi, S. A. (2015). Issues in Pakistan’s Economy: A political Economy Perspective. Oxford University Press.
Aisen, A., & Veiga, F. J. (2013). How does political instability affect economic growth?. European Journal of Political Economy, 29(1), 151-167.
Ajide, F.M. (2015). Financial Innovation and Sustainable Development in Selected Countries in West Africa. Innovation Finance, 15(2), 85–112.
Alesina, A., & Drazen, A. (1991). Why are stabilization delayed. American Economic Review, 1170-1188.
Alesina, A., & Perotti R. (1996). Income distribution, political instability and Investment. European Economic Review, 40(6), 1203-1228.
Alesina, A., & Perotti, R. (1994). The political economy of growth: a critical survey of the recent literature. The World Bank Economic Review, 8(3), 351-371.
Ali, A., & Rehman, H. U. (2015). Macroeconomic instability and its impact on gross domestic product: an empirical analysis of Pakistan. Pakistan Economic and Social Review, 53(2), 285-316.
Barro, R. (1991) Economic Growth in a Cross Section of Countries. Quarterly Journal of Economics, 106, 407–442.
Barro, R. J. (1996). Institutions and growth, an introductory essay. Journal of Economic Growth, 1(2), 145-148.
Beck, T., Chen, T., Lin, C., & Song, F. M. (2016). Financial innovation: The bright and the dark sides. Journal of Banking & Finance, 72, 28-51.
Benhabib, J., & Spiegel, M. M. (1994). The role of human capital in economic development evidence from aggregate cross-country data. Journal of Monetary economics, 34(2), 143-173.
Cheng, X., Degryse, H (2014). The Impact of Bank and Non-Bank Financial Institutions on Local Economic Growth in China. Journal of Financial Services Research, 37(2), 179–199.
Dollar, D & Kraay, A. (2002) Growth Is Good for the Poor. Journal of Economic Growth, 7, 195–225.
Easterly, W. (1999). The Ghost of Financing Gap: Testing the Growth Model Used in the International Finance Institutions. Journal of Development Economics, 60(2), 423–438.
Easterly, W., & Rebelo, S. (1993). Fiscal policy and economic growth. Journal of Monetary Economics, 32(3), 417-458.
Goldsmith, A, A. (2004) Predatory versus developmental rule in Africa. Democratization, 11(3), 88-110
Gupta, D. K. (1987). Political psychology and neoclassical theory of economic growth: The possibilities and implications of an attempted resynthesize. Political Psychology, 8(4) 637-665.
Gupta, D., & Blee, A. (1998). Democracy, economic growth and political instability: An integrated perspective. Journal of Socio-Economics, 27, 587-611.
Haan, D. J & Siermann, C, J. (1996). Political Instability, Freedom, and Economic Growth: Some Further Evidence. Economic Development and Cultural Change, 44 (2), 339-350.
Hibbs, D. A. (1977). Political parties and macroeconomic policy. American Political Science Review, 71(04), 1467-1487.
Jong-A-Pin, R. (2009). On the measurement of political instability and its impact on economic growth. European Journal of Political Economy, 25(1), 15-29.
King, R. & Rebelo, S. (1990). Public Policy and Economic Growth: Developing Neoclassical Implications. Journal of Political Economy, 98 (1), 126–151.
Klomp, J., & de Haan, J. (2009). Political institutions and economic volatility. European Journal of Political Economy, 25(3), 311-326.
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(1), 688-726.
Mankiw, N. G., David, R., & David, N. W., (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107(2), 407-437.
Memon, A, P., Memon, K, S, Shaikh, S., & Memon, F. (2010). Political Instability: A case study of Pakistan. Journal of Political Studies, 18(1), 31-43.
Nagayasu, J. (2012). Financial innovation and regional money. Applied Economics, 44(35), 4617–4629.
Narayan, P., & Russell, S., (2005). Trade liberalization and economic growth in Fiji. An Empirical Assessment Using the ARDL Approach. Journal of the Asia pacific Economy, 10(1), 96-115.
Okafor, G. (2017). The impact of political instability on the economic growth of ECOWAS member countries. Defence and Peace Economics, 28(2), 208-229.
Onafowora, O. A., & Oluwole, O., (1998). Can Trade Liberalization Stimulate Economic Growth in Africa? World Development, 26(3), 479-506.
Ozler, S., & Rodrik, D. (1992). External Shocks, Politics and Private Investment: Some Theory and Empirical Evidence. Journal of Development Economics, 39(1), 141-162.
Pesaran, M.H., Shin, Y., & Smith, R.J. (2001). Bound Testing Approaches to theAnalysis of Level Relationship. Journal of Applied Economics, (16), 289-326.
Rodrik, D. (2005). Why We Learn Nothing from Regressing Economic Growth on Policies. Cambridge: Harvard University.
Romer, P.M. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5), 71-102.
Sallahuddin, N. A., & Awan, A. G. (2017). Impact of Political Instability on Pakistan’s Economic Growth. Global Journal of Management, Social Sciences and Humanities, 3(4), 729-748.
Shahbaz, M., Khalil, A., & A. R. Chaudhary, (2008). Economic Growth and Its Determinants in Pakistan. The Pakistan Development Review, 47(4), 471-486.
Shittu, A. I. (2012). Financial intermediation and economic growth in Nigeria. British Journal of Arts and Social Sciences, 4(2), 164-179.
Tabassam, A. H., Hashmi, S. H., & Rehman, F. U. (2016). Nexus between political instability and economic growth in Pakistan. Procedia-Social and Behavioral Sciences, 230, 325-334.
Wachter, J.A. (2006) Comment on: Can financial innovation help to explain the reduced volatility of economic activity? Journal of Monetary Economics, 53, 151–154.
Weede, E. (1996). Political regime type and variation in economic growth rates. Constitutional political economy, 7(3), 167-176.
Zahra, T., Waheed, A., Mahmood, H., & Rafique. M. A. (2017). Impact of political instability on financial development of Pakistan. International Journal of Management Sciences and Business Research, 6(4), 1–13.
Zaidi, S. A. (2015). Issues in Pakistan’s Economy: A political Economy Perspective. Oxford University Press.
Published
2020-11-23
How to Cite
Ali, S., Ahmad, K., & Shahid, M. (2020). Implications of Political Stability and Financial innovations for Sectoral Economic Growth of Pakistan. Amazonia Investiga, 9(34), 34-43. https://doi.org/10.34069/AI/2020.34.10.4
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