Impact of Financial Liberalization and Trade Intensity on Economic Growth in South Asian Countries: A Panel ARDL Approach

Abstract

This study investigates the impact of financial liberalization and trade intensity on economic growth in selected South Asian countries—Pakistan, India, Bangladesh, and Sri Lanka—using panel data from 2000 to 2019. The selection of these countries is due to the availability of reliable data from the World Development Indicators (WDI) Database. Trade intensity equals the ratio of total trade (imports and exports) to GDP, while financial liberalization is through interest rates. The analysis employed Kao co-integration, unit root tests, cross-sectional dependence, slope heterogeneity, causality and the ARDL model to evaluate short- and long-term relationships. GDP growth and financial liberalization are stationary at this level. The trade intensity is stationary at first difference. According to Dumitrescu-Hurlin, financial liberalization does cause trade intensity. The panel ARDL results suggest that financial liberalization and trade intensity negatively and positively influence economic growth.