GLOBALIZATION AND ECONOMIC GROWTH:
EVIDENCE FROM PAKISTAN
DEPARTMENT OF ECONOMICS
1. An
Introduction
 Globalization mean the process in which other organization develop
interaction and interact at international level.
 ‘Globalization’ is essential to the human creatures. Because of this
concept, some analysts are of the view that globalization initiated
around 60,000 years ago. It is the time of the commencement of
human history.
 Being a Developing country the process in
“Globalization” embraced last third of 20th century.
Pakistan
term
 Smith and Todaro (2011) visions about Globalization, according to
them it is a process by which economies of across the world become
highly integrated and hence leading to increase the global economy
and enhance growth, also for making global policy.
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•
According to World Health Organization’s definition the term ‘‘Globalization
is be defined as the increase in the inter-linkages and inter-dependence of
the peoples and countries of the world’’.
Integration is source of
 Human innovation
 Technological Advancement
 Mobility of People, Knowledge and Labor across the country territory.
Advantages
Disadvantages
 Free Trade Mobility of goods
and services.
 Globalization
is
increasing
inequalities and gap between rich
and poor.
 Free trade discourages the  Interdependencies
possibility of war.
between
nations also cause of instabilities.
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Globalization: Challenges for Pakistan
Not only economic point of view but also political, social, legal, cultural and
religious.
A. Influence of Globalization Pakistan’s National Institutions
 Adverse society based outcome early free trade policy since1990.
Pressure on market forces.
 Culturally implementation of globalisation.
 The income distribution in the country, decrease in the level of employment
because of the pressure on the control of quality and standard of industrial
goods, rural and urban differentials
 Fail to awareness about advantages and disadvantages.
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B. Impact of Globalization on Economies of Pakistan
 Since 1980 introduce Trade openness
 Structural reform in order to liberalise economy
 Global chain boost up .Economic growth 7.5% increase 2005 to 2007. Foreign
debt reduce
 High oil prices created some serious problem in 2008. Foreign Exchange
Reserve crash down
 Negative effect of globalization
C. Association between trade and Globalization
 The sports goods industry came under serious pressure due to the allegations
of child labour policy. .
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Statement of the Problem:
Due to reason of political instability, lake of social awareness and
economic crisis in Pakistan, for the comprehensive empirical
analysis
this
study
was
extended
for
Globalization
Index,
international funds inflows as a foreign investment, gross capital
Formation, and International trade balance.
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Objective of the Study
Is there any link among globalization and economic growth in Pakistan?
Hypothesis
of the Study
 H1 = There isn’t any substantial relationship exists between Globalization
Index and GDP growth.
 H2 = No significant relationship exists between Foreign Direct Investment
inflow and economic growth.
 H3 = No co relation exists between Gross Fixed
Capital Formation and
economic growth.
 H4 = No significant association exists between Import and economic growth.
 H5 = There is no significant affiliation between export and economic growth.
2.
Literature Review
 In 2006, Dreher new empirically investigated Overall Globalization in adding subindex created to extent the signal measurement influence Economic Growth for 123
countries. The study found that globalization stimulate growth by used panel figures
of KOF. Based on Panel Data for OECD, African, ASEAN and developing countries
a number of studies have found that globalization has moving long term solid and
optimistic relationship with economic progress, rather than short term (Chang & Lee,
2010; Samimi & Jenatabadi, 2014; and Ying et al., 2014). At the similar phase, the
study has found negative impact on economic growth non corporation (Elsherif,
2016).
 Generally Globalization has major and positive influence on economic progress.
Economic Globalization and Social Globalization have also significant impact, rather
than Political Globalization not (Savrul & Incekara, 2017; and Gurgul & Lach, 2014).
Some studies empirically establish Economic and Political oriented globalization has
optimistic influence on Economic Growth while society based globalization has
pessimistic impact upon economic growth (Kilic, 2015; and Titalessy, 2018).
 Hossain et al. (2018) showed that Human Resources and Trade have positive and
long period link with economic growth, rather financial combination and gross fixed
capital formation have adverse afffect on economic growth. Similarly, at the same
series, trade openness has significant influence while financial integration
insignificant on economic outcome (Mete et. al. 2006; and Olusi & Folorunso, 2008).
According to fully modified test, Zerrin and Dumrul (2018) found that economic growth
increase by Social Globalization and Economic Globalization, the concept differed in de
facto and de jure, the isolate de jure result expressed that Economic Oriented
Globalization has negative effect on economic growth, while de facto Globalization and
Social Globalization have optimistic influence on economic growth.
Hossain et al. (2018) showed that Human Resources and Trade have positive and
long period link with economic growth, rather financial combination and gross fixed
capital formation have adverse afffect on economic growth. Similarly, at the same
series, trade openness has significant influence while financial integration insignificant
on economic outcome (Mete et. al. 2006; and Olusi & Folorunso, 2008). Overall
Globalization, Capital Formation and total labor have among long run association with
GDP (Maqbool-ur-Rahman, 2015). Meraj (2012) found that there has casual
connection among GDP, Import, Export and also having positive impact on less
developing countries. Based on annual data the study found that there have no
association among Import, Export and Economic Growth but also have bi-directional
causativeness Import and Export to Economic Growth (Bakari & Maboruki, 2017; and
Bakari, 2016). Samimi and
3. Research
Methodology
Model of the Study:
The model of this study is built on the previous study of Midiyanti and yao
(2019) regression procedure for estimation. It simply use a linear regression
equation, is in implicit form as follow:
GDPt (annual growth)= f( GIt, FDIt, GFCFt, IMPt, EXPt)
ln. GDPt = α + β1GIt+ β2FDIt+ β3GFCF+β4Impt+β5Expt+εt
Where: values are presented as percentage (GDP) Gross Domestic Product
annual growth,(GI) Globalization index,(FDI) Foreign Direct Investment ,
(GFCF) Gross Fixed Capital Formation,( IMP ) Import, ,(EXP) Export, Error
Term(𝜀𝑡 )
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Data and Variable of the Study
(1980 to 2017)
Variable names
S. no.
Symbol
Source of the variable
data
Symbol
Dependent Variable
1
Gross Domestic Product annual growth
GDP
World Bank Open Data
WB
Independent Variables
2
Globalization Index
GI
KOF Index
KOF
3
Foreign Direct Investment
FDI
World Bank Open Data
WB
4
Gross Fixed Capital Formation
GFCF
World Bank Open Data
WB
5
Import
IMP
World Bank Open Data
WB
6
Export
EXP
World Bank Open Data
WB
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Econometric Methodology
 Descriptive Statistic of Data
 Lag Selection Criteria
 Residual Serial Correlation LM test
 Unit Root Test
 ARDL Test
 Error Correction Model ECM
 Granger Causality Test
 CUSUM and CUSUMSQ tests
4. Empirically
ANALYSIS
Descriptive Statistic of Data
Test statics
GDP
FDI
EXPORTs
GI
GFCF
IMPORTs
Mean
4.89
0.93
13.72
45.12
16.11
19.81
Median
4.84
0.65
13.55
44.70
16.49
19.91
Maximum
10.21
3.66
17.35
55.34
19.23
24.09
Minimum
1.01
0.10
8.23
33.66
12.52
14.63
S.D
2.09
0.81
2.36
8.01
1.66
2.66
Skewness
0.20
2.06
-0.34
-0.11
-0.44
-0.36
Kurtosis
2.70
6.78
2.34
1.50
2.26
2.09
Sample size
38
38
38
38
38
38
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The Result of Unit Root Testing
Table 1. Lag Selection Criteria Results
Lag
Log L
LR
FPE
AIC
SC
HQ
0
-419.6399
NA
1473.079
24.32228
24.58891
24.41432
1
-236.5814
292.8936* 0.341115*
15.91894
17.78535*
16.56322*
2
-212.8968
29.77489
0.834620
16.62268
20.08888
17.81921
3
-161.6490
46.85518
0.611521
15.75137*
20.81736
17.50015
Note: * indicates lag order selected by the criterion. E-view 11
Before checking the stationary, it is important to choose the appropriate lag for the
model
 Final Prediction Error (FPE), suggest 1 lag for ARDL
 Akaike Information Criterion (AIC) suggest 3 lag for ARDL
 Schwarz Information Criterion (SD) suggest 1 lag for ARDL
 Hannan-Quinn Information Criterion (HQ) suggest 1 lag for ARDL
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Residual Serial Correlation LM test
Table 2 .LM Test Results
Lags
F. stat.
Prob.
1
2
3
4
5
6
7
8
9
10
1.156581
1.224525
0.388467
1.688019
0.864438
0.617713
2.073399
0.838738
0.578053
1.111761
0.3079
0.2447
0.9983
0.0388
0.6752
0.9367
0.0071
0.7096
0.9586
0.3554
 Express there is no serial correlation exist at taking three lags.
 P value is greater than significant level.
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Unit Root Test
Table 3 Result of Unit Root Testing Results
Variables
GDP
GI
FDI
GFCF
Import
Export
Augmented Dickey–Fuller
Level
1st Diff.
-3.890*
-0.929
-2.808***
-1.737
-2.631***
-0.758
-7.679
-4.757*
-4.025
-5.325*
-7.771
-5.443*
Phillip-Peperoni
Level
1st Diff.
-3.854*
-0.889
-1.867
-1.859
-2.517
-0.761
-10.822
-4.752*
-3.995*
-5.302*
-7.843*
-5.441*
The null hypothesis for both test is that variable which has a unit root. The superscript *, **, *** denotes 1 percent *,
5 percent ** and 10 percent *** level of significance respectively.
 GDP is stationary in both test ADF and PP at level I (0).
 FDI and Import at 10% with intercept is stationary in ADF test while in PP
test at first difference stationary.
 GI and Export have a unit root which mean they are not stationary in level.
By taking first difference I (1) results are stationary at 1%.
 Mix outcome is favored by ARDL methodology.
ARDL Bond Test
Table 4.Bound Test Value
Test statics
Value
Significant
I(0)
I(1)
F-statistic
7.206881
10%
2.08
3
k
5
5%
2.39
3.38
2.5%
2.7
3.73
1%
3.06
4.15
 The estimation F -statistic value is 7.206 which is greater than lower
bound value i.e. I (0) and upper bound value i.e. I (1) boundary.
 There is a clear signs of the existence of the Long run relationship
among the variables.
 F > lower and upper bound so reject null Ho. hypothesis
Table 5. ARDL Coefficient Result
Variable
Coefficient
Std. Error
t-statistic
Prob.
FDI
1.454106
0.570512
2.548776
0.0191**
EXP
-0.330642
0.151229
-2.186369
0.0408**
GI
GFCF
IMP
-0.137234
0.065938
-2.081265
0.0505***
0.160061
0.285179
0.561264
0.5809
-0.278181
0.133371
-2.085758
0.0500***
C
18.09392
7.214263
2.508076
0.0209**
EC = GDP - (1.4541*FDI -0.3306*EXP-0.1372*GI + 0.1601*GFCF -0.2782*IMPORT + 18.0939 )
 Globalization has significant but negative impact on economic growth in the light of
the results of ARDL.
 FDI shows significant and positive impact on economic growth at 5 percent level.
Gross Fixed Capital Formation is statistically insignificant and positive
 Import has significant but negative impacts on economic growth
 Export has significant but negative impact on economic growth.
Result Error Correction Model ECM
Table 6. ECM Regression Unrestricted Constant and No Trend result
Variable
Coefficient
Std. Error
t-Statistic
Prob.
D(FDI)
3.253910
0.523858
6.211441
0.0000*
D(EXP)
0.276134
0.170135
1.623029
0.1202
D(EXP(-1))
0.514631
0.169140
3.042640
0.0064*
D(EXP(-2))
0.715127
0.177201
4.035680
0.0006*
D(GI)
-0.970198
0.241559
-4.016395
0.0007*
D(GI(-1))
-0.435999
0.217450
-2.005050
0.0587**
D(GI(-2))
-0.771154
0.252236
-3.057267
0.0062*
D(GFCF)
0.785903
0.256989
3.058124
0.0062*
Coint.Eq(-1)*
-1.136108
0.140289
-8.098310
0.0000
 Firstly ECM supported to long run relationship which is negative and significant.
ECM co-integration represent 113 percent speed of adjustment converged to the
equilibrium. Secondly short run analysis represent.
Table 7. Granger Causality Test Results
Null Hypothesis:
FDI does not Granger Cause GDP
Obs. F-Statistic
36
GDP does not Granger Cause FDI
EXP does not Granger Cause GDP
36
GDP does not Granger Cause EXP
Prob.
3.42978
0.0451**
0.99378
0.3817
0.82849
0.4461
0.56273
0.5754
GI does not Granger Cause GDP
GDP does not Granger Cause GI
36
1.64040
2.46920
0.2103
0.1011
GFCF does not Granger Cause GDP
36
1.01748
0.3733
8.70629
0.0010*
1.32671
0.2800
8.00714
0.0016*
0.76950
0.72387
0.4719
0.4929
GDP does not Granger Cause GFCF
IMP does not Granger Cause GDP
36
GDP does not Granger Cause IMP
EXP does not Granger Cause FDI
FDI does not Granger Cause EXP
36
GFCF does not Granger Cause FDI
36
0.72683
0.4915
4.97076
0.0134**
2.04604
0.1463
2.24286
0.1231
36
2.27784
3.59390
0.1194
0.0395**
36
1.48512
0.2421
0.38675
0.6825
0.51442
0.04207
0.13968
2.44753
0.6029
0.9589
0.8702
0.1031
3.61529
0.0388**
1.10841
0.3428
0.50548
0.6081
1.27698
0.2931
FDI does not Granger Cause GFCF
IMP does not Granger Cause FDI
36
FDI does not Granger Cause IMPORT
GI does not Granger Cause EXP
EXP does not Granger Cause GI
GFCF does not Granger Cause EXP
EXP does not Granger Cause GFCF
IMP does not Granger Cause EXP
36
EXP does not Granger Cause IMP
GFCF does not Granger Cause GI
36
GI does not Granger Cause GFCF
IMP does not Granger Cause GI
36
GI does not Granger Cause IMPORT
IMP does not Granger Cause GFCF
GFCF does not Granger Cause IMPORT
36
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 FDI has unidirectional causality relationship with GDP and GFCF.
 GDP has unidirectional relationship with GFCF and Import.
 Globalization Index has unidirectional relationship with GFCF.
 Export and import has unidirectional relationship with GI.
 exports does not granger cause growth in GDP.
 Foreign Direct Investment show unidirectional causality running towards
Gross Capital Formation.
CUSUM and CUSUMSQ tests
The results of both the CUSUM and CUSUMSQ tests show stability in the longrun as the estimated line is lying in between the two bounds.
(a) Graph of the Cumulative Sum of
Recursive Residuals when ∆GDP is
taken as a dependent Variable
15
(b) Graph of the Cumulative Sum of
Squares of Recursive Residuals when
∆GDP as a dependent variable
1.6
10
1.2
5
0.8
0
0.4
-5
0.0
-10
-15
-0.4
1998
2000
2002
2004
2006
CUSUM
2008
2010
2012
5% Significance
2014
2016
1998
2000
2002
2004
2006
2008
CUSUM of Squares
2010
2012
2014
5% Significance
2016
5. Conclusion
 Purpose: The determination of this research is to reassess nexus among
globalization and strongly connected factor to economic growth prosperity
in Pakistan. This analysis employs time series data from the date covering
1980 to 2017.
 Econometric Technique: Unit root , ARDL, ECM, Granger Causality Test
and Cumulative Sum (CUSUM) as well as Cumulative Sum of Squares
(CUSUMSQ) tests.
 Unit Root Result: Some variables are stationary on level I (0) and some are
stationary at first integrated of order I (1).
 Auto-Regressive Distributive Lag (ARDL): The result express there exists a
long-run association existing among variables.
Continue….
 Globalization (GI), Import and export has significant but negative
impact on economic growth. Foreign Direct Investment (FDI) shows
significant and positive impact on economic growth. Gross Fixed
Capital Formation (GFCF) express an insignificant but positive impact
on economic growth.
 Error Correction Model ECM co-combination signifies 113 percent
speed of adjustment which is converged to the equilibrium due to
negative sign value.
 Granger Causation estimation shows there are unidirectional causation
exist among some variables GI, FDI, and GDP, import, export and
GFCF.
 The study conclude that globalization is more vulnerable to the socioeconomic and political stability in Pakistan. Due to the political instability
and ineffective policies of the authorities balance of trade is negative.
 This is because of the reason that Pakistani economy is affected with
continuous ups and downs in the growth rate since past decades.
 Fluctuations in the growth rate are possibly due the political environment
and inefficiency in policy implementation in the country.
 Pakistan is exporting fewer commodities as compared to Imports. That’s
why when Imports are increasing, it negatively affect the balance of trade
and hence foreign exchange.
Suggestion
 Government of Pakistan must pay attention to globalization, in particular about
small and medium businesses and discourage illegal trade activities at the
borders of the country
 Institutional quality control should be effectively ensured by means of institutional
reforms and policies that will enhance the effectiveness of globalization.
 Research and development centers must be created in order to bring about
sufficient investments weather on domestic level or international level.
 There is need to reduce exploitation of resources across the country, and hence
increasing the efficiency of their use.
 This study recommend that political views should be same after changing
government like during 5 year plains. Government should maintain our national
and international policies.
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Thank you