Globalization and Economic Growth in Nepal: An ARDL Approach to Co-Integration

Abstract

Nowadays, globalization has become a buzzword. Covering the wide range of economic, political, social and cultural trends, growing integration of economies and societies all over the world has been one of the most burning topics that are being debated in international economics. The impact of globalization differs from country to country, however, globalization is the demand of the hour and no country can bear the cost of living in isolation. This paper attempts to enquire into the fact; how globalization impacting the economic growth of Nepal by using novel but robust econometric tool ARDL approach to co-integration. In order to examine the globalization and economic growth relationships empirically, this study considers trade openness and financial integration, capital investment and labor force as macro-economic independent variables expected to influence the economic growth in a regression framework. The ARDL regression results show that globalization (trade openness and financial integration) has no significant impact on economic growth of Nepal both in the long run and the short run. Johansen’s co – integration procedure showed that all the above - mentioned variables are co – integrated implying these macro-economic variables have long run equilibrium relationship with economic growth via GDP growth. Equilibrium or error correction model results also supported the co – integration results.

Keywords: Globalization, economic growth, ARDL approach to co-integration, Nepal