Institutional Quality, Financial Development, Interaction, and Macroeconomic Volatility: Ardl Co Integration Approach

Abstract

In this chapter, the impact of globalization on institutional regulations is taken into account as we explore the relationship between institutional quality, financial openness, and macroeconomic volatility in Pakistan. The study's goal is to discover the relationships and influences between these variables. The autoregressive distributed lag (ARDL) co-integration technique is used in the study to examine both the long-run and short-run correlations among the variables. Time series data spanning the years 1970 to 2010 are used. The results show that macroeconomic volatility in Pakistan is highly influenced by development, financial openness, and trade openness over the long term. Additionally, the results indicate that when institutions are taken into account alongside trade and financial openness, output volatility tends to grow while investment volatility tends to decrease. In conclusion, this study emphasizes the significance of financial openness, institutional quality, and their relationship in determining macroeconomic volatility in Pakistan. The study's findings suggest that it is important to take into account the combined effects of these factors on macroeconomic stability as globalization advances and institutions adjust to regulatory changes.