The Impact of Globalization Dimensions on Macroeconomic Performance in SAARC Countries: A Panel Data Analysis
Abstract
This study examines the impact of globalization—economic, social, and political—on the macroeconomic performance of the South Asian Association for Regional Cooperation (SAARC) member countries from 1980 to 2023. An unbalanced panel dataset consisting of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka is generated and used to examine the effects of globalization on GDP growth and inflation, with foreign direct investment (FDI) and trade openness as critical mediating variables. To address cross-sectional dependence, heteroskedasticity, and autocorrelation, panel fixed effects models are employed in the analysis, and the robustness of the study is assured with unit root testing, cointegration, and diagnostic testing. Our results indicate that economic and social globalization positively foster growth, with economic globalization having the highest positive impact (coefficient = 0.089***). Additionally, we conclude that FDI and trade openness have significant positive effects on growth, while political globalization does not have a significant positive or negative relationship with it. In line with the disciplining hypothesis, our inflation model indicates that trade openness exerts a significant disinflationary effect (coefficient = -0.042***).
In contrast, foreign direct investment (FDI) influences inflation positively (coefficient = 0.124**), presumably due to demand-side risks. Our study suggests that member countries of SAARC must continue to strategize and integrate into the global economy. For policy implications, countries should design initial macroeconomic resilience by insisting on fiscal discipline, maintaining foreign exchange buffers, and diversifying the economy to minimize the impact of volatility in the global economy.
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