Financial Globalization and Financial Sector Effectiveness: An Index Based Analysis of Pakistan

This paper tried to assess the nature of relationship betweenfinancial sector openness and financial sector deepening forPakistan. The study utilized data set of annual frequency onfinancial sector openness index, institutional quality index,trade openness and a set of control variables over a periodfrom 1995 to 2018. The application of econometric method ofAutoregressive Distributed Lag Model (ARDL) confirmed theextensively debated long run association, and after havingestablished this, found the estimates (both short run and longrun). Results demonstrated that financial openness andinstitutional quality improve the quality of financial sectorefficiency in Pakistan for short run; however, in the long runfinancial openness did not lead financial sector development.These findings indicate that policies promote financial sectoropenness appear to help Pakistan to derive the benefits ofquality of financial sector efficiency. Our analysis suggeststhat there are unavoidable risks associated with financial sectoropenness. Therefore financial openness is not just an isolatedpolicy goal. Along with institutional quality soundsmacroeconomics framework is an essential prerequisite formaking sure that financial development is beneficial.