Abstract
Pakistan has been selected in this chapter as a representative example of a frequent user of IMF resources. Here, by applying the Vector Autoregression (VAR) model techniques, various counterfactual scenarios are estimated for a period of 1980–2014, to see impact of a significant institutional determinant (from Chap. 2), KOF index of globalization on macroeconomic instability and real economic growth. Results highlight that through enhanced focus on institutional quality determinants, macroeconomic instability can be reduced, and hence higher growth rate of GDP can be achieved.
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Notes
- 1.
According to IEO (2002, p. 9 and 24) a country is considered to be a prolonged user if during a decade it remains for at least seven years in an IMF programme.
- 2.
- 3.
- 4.
‘Inclusive economic institutions’ on the other hand, work towards and facilitate participation of people in economic activity. Moreover, an inclusive/extractive economic institution results because of an inclusive/extractive political institutional setup (Acemoglu and Robinson 2012, pp. 74–82; Acemoglu 2006; Acemoglu and Robinson 2008).
- 5.
In such a situation, welfare of one person can only be increased by decreasing someone else's welfare (Groenewegen et al. 2010, p. 16).
- 6.
SROs are special instructions from the Federal Board of Revenue (federal tax collection authority in Pakistan). These instructions/rules are in addition to the annual budget, are brought into effect without taking parliamentary approval, and are in principal for a limited time period.
- 7.
As to how much an asset is relevant and needed for a particular kind of transaction, in terms of how much it will lose its value if it has to be put to use for another kind of transaction (Groenewegen et al. 2010, p. 369).
- 8.
- 9.
For details, see Ismihan (2003, pp. 214–215), who constructed MII.
- 10.
It may be indicated here that while Ismihan (2003) only included the first four indicators to construct the MII, the current study augments it with one more indicator.
- 11.
- 12.
Data source is State Bank of Pakistan (http://www.sbp.org.pk/) and Ministry of Finance, Government of Pakistan (http://finance.gov.pk/survey_1314.html). Also, data on fiscal deficit is taken instead of budget deficit due to availability of data in this format for Pakistan.
- 13.
Data source is State (or central) Bank of Pakistan (SBP; http://www.sbp.org.pk/).
- 14.
Data taken from IFS CD ROM (IMF).
- 15.
- 16.
From Chap. 3, it can be seen that in IMF programme countries, determinants of institutional quality have an overall negative impact on MII. Moreover, Acemoglu et al. (2003) pointed out that the main reason behind macroeconomic instability and the varying levels of macroeconomic volatility among different countries were related more with institutional reasons than the traditionally identified macroeconomic determinants. Similarly, better budgetary institutions (which are important economic institutions) had a negatively significant impact on (budget) deficit (von Hagen 1991). Note: for details on VAR and SVARs, see Chap. 5, ‘Multiequation time-series models’ of Walter Enders (2015).
- 17.
I have employed ER in VAR model, but simulation analysis is based on ERV.
- 18.
See White (1980) for details.
- 19.
Calculation on the basis of various issues of Pakistan’s Economic Survey (http://www.finance.gov.pk/).
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Javed, O. (2016). IMF Programmes and Institutional Quality Determinants: Economic Scenarios in Pakistan. In: The Economic Impact of International Monetary Fund Programmes. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-29178-9_4
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