Financial Globalization and Economic Growth in South Asia

Abstract

The article examines relationship between financial globalization and economic growth in South Asian countries namely Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. Following the framework of Bekaert et al. (2005) and with the help of Panel VAR and Panel causality (in GMM framework) models the study concludes that the causation from financial globalization to growth in the region appears to be weak. There appears reverse causation running from growth to financial globalization. We found that domestic macroeconomic policies such as fiscal prudence act as pull factors for foreign capital. The article has some interesting results at individual country level. JEL: C33, F21, F36, F65.