Breaking the Cycle: Exploring the Effect of Globalization towards Inflation and HDI in Pakistan and Bangladesh

Abstract

This research aims to evaluate the influence of globalization on inflation and the HDI in both Pakistan and Bangladesh. Using dependency theory and human capital theory as theoretical frameworks, economic data were analyzed between 1990 and 2023. To model long-term data, panel unit root tests and stationarity analysis were employed, while the ARDL model was employed to assess short- and long-run relationships. The results indicated that globalization is positive and significantly affecting both HDI and inflation, but the patterns differ from one country to another. In the case of Pakistan, while globalization counts to be positively significant in the long and short run over inflation, some of its lagged values tend to have a negative significance. On the contrary, globalization will be significantly enhanced in Bangladesh and positively maintained HDI according to time-varying but short-term effects. Hence, the conclusion states that while globalization tends to improve countries financially and in terms of human development, there needs to be a proper policy to ensure the smooth flow of such transformation without inflationary consequences, hence continuing the growth trajectory and keeping economies under control.