E3 Journal of Business Management and Economics

E3 Journal of Business Management and Economics Vol. 6 (2) pp. 027-037, June 2015; © E3 Journals; ISSN 2141-7482

Trade liberalization, economic size and macroeconomic volatility: Empirical evidence from Pakistan

Abstract

The purpose of this study is to investigate the link between trade liberalization, government size and the macroeconomic volatility in case of Pakistan. For this purpose, study used time series data from 1967-2010 and employed co integration technique to find long run relationship. The results proposed that in long run trade liberalization and economic size create volatility in output. However consumption and investment volatilities are directly link with trade liberalization and government size has direct relationship with output and investment volatilities. It is proposed that increase in economic size may increase the investment and output volatilities in long run. Furthermore error correction model suggested that in short run output volatility, trade liberalization, and economic size are negatively linked whereas government size directly linked with output, consumption and investment volatility in the short run.

Keywords: Government Spending, Income, Macroeconomic Volatility, Population, Trade Liberalization