Does financial development foster economic globalization in emerging economies? Time series evidence from China and India

This study explores the role of financial development in economic globalization for India and China by controlling economic growth, institutional quality, inflation, government investment, and real interest rate as crucial determinants. Using annual time series data from 1984 to 2018, the long-run estimates from ARDL model reveal that financial development, institutional quality, and government investment significantly drive economic globalization. We also find that the inflation rate offsets economic globalization in India but promotes it in China. Interestingly, while economic growth promotes economic globalization in India, it impedes in China. The varying effects of real interest rates on economic globalization are observed in both economies. These findings offer key macroeconomic policy.