Trade Openness and Its Effects on Economic Growth in Selected South Asian Countries: A Panel Data Study
The study investigates the causal link between trade
openness and economic growth for four South Asian countries for
period 1972-1985 and 1986-2007 to examine the scenario before and
after the implementation of SAARC. Panel cointegration and
FMOLS techniques are employed for short run and long run
estimates. In 1972-85 short run unidirectional causality from GDP to
openness is found whereas, in 1986-2007 there exists bi-directional
causality between GDP and openness. The long run elasticity
magnitude between GDP and openness contains negative sign in
1972-85 which shows that there exists long run negative relationship.
While in time period 1986-2007 the elasticity magnitude has positive
sign that indicates positive causation between GDP and openness. So
it can be concluded that after the implementation of SAARC overall
situation of selected countries got better. Also long run coefficient of
error term suggests that short term equilibrium adjustments are driven
by adjustment back to long run equilibrium.
[1] W. A. Lewis, (1980). The slowing down of engine of growth. American
Economic Review, 70: 555-564.
[2] Dowrick, S. and Golley, J. (2004). Trade openness and growth: Who
benefits? Oxford Review of Economic Policy, 20(1): 38-56.
[3] Ekanayake, Vogal and Veeramacheneni (2003). Openness and
economic growth: empirical evidence on the relationship between
output, inward FDI, and trade. Journal of Business Strategies, 20.
[4] Hassan and Kamrul, A F, (2005). Trade openness and economic growth:
Search for a Causal Relationship. South Asian Journal of Management.
Retrieved on 25th December,2010 from
http://findarticles.com/p/articles/mi_qa5483/is_200510/ai_n21363857/?
tag=content;col1
[5] Klasra, M. Ahmad (2009). Foreign direct investment, trade openness
and economic growth in Pakistan and Turkey: an investigation using
bounds test. Retrieved on 25th December,2010 from
http://www.springerlink.com/content/w11nA14p1526m0107/
[6] World Bank. (2008). World Development Indicators [CD Rom 2009].
World Bank, Washington, D.C.
[7] Kemal, A. R., Musleh Ud Din, Q. Usman, F. Lloyd and S. Sirimevan
(2002). Exports and economic growth in South Asia, A Study Prepared
for the South Asia network of Economic Research Institutes.
[8] Ahmed and Ghani (2007). South Asia growth and regional integration.
World Bank Publication.
[9] Dollar, D. (1992). Outward-oriented developing economies really do
grow more rapidly: Evidence from 95 LDCs, 1976-1985. Economic
Development and Cultural Change. 40(3), 523-44.
[10] Harrison (1996).Openness and growth:A time series cross country
analysis for developing countries. National Bureau of Economic
Research. Working paper no.5221.
[11] Frankel, J. and Romer, D. (1999). Does trade cause growth? The
American Economic Review, 89(3).
[12] Rodriguez, F. and Rodrik, D. (2001). Trade policy and economic
growth: A Asceptic's guide to the cross-national evidence. In
Macroeconomics annual 2000, ed. Ben Bernanke and Kenneth S.
Rogoff . Cambridge: MIT Press.
[13] David, D. and Kraay, A. (2002). Trade, growth and Poverty.
Development Research Group, The World Bank.
[14] Din, Musleh-ud (2004). Exports, imports, and economic growth in
South Asia: Evidence using a multivariate time-series framework. The
Pakistan Development Review.43(2),105-124.
[15] Sarkar P. (2007). Trade openness and growth: Is there any link? MPRA
Paper No. 4997, 04:22.
[16] Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in
heterogeneous panels. Journal of Econometrics, 115, 53-74
[17] Maddala, G.S., and Wu. S. (1999). A comparative study of unit root
tests with panel data and a new simple test. Oxford Bulletin of
Economics and Statistics, 61, 631-652.
[18] Levin, A., Lin, C.F., and Chu, C.S. (2002). Unit root tests in panel data:
asymptotic and finite-sample properties. Journal of Econometrics, 108,
1-24.
[19] Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample
properties of pooled time series tests with an application to PPP
hypothesis: new results. Econometric Theory, 20(3), 597-627.
[20] Kao, C. (1999). Spurious regression and residual-based tests for
cointegration in panel data. Journal of Econometrics, 90 (1), 1-44.
[21] Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated
panels, nonstationary panels, panel cointegration and dynamic panels.
Advances in Econometrics , 15, 93-130.
[22] Engle, R.F., and Granger, C.W.J. (1987). Cointegration and error
correction: representation, estimation, and testing. Econometrica, 55,
251-276.
[1] W. A. Lewis, (1980). The slowing down of engine of growth. American
Economic Review, 70: 555-564.
[2] Dowrick, S. and Golley, J. (2004). Trade openness and growth: Who
benefits? Oxford Review of Economic Policy, 20(1): 38-56.
[3] Ekanayake, Vogal and Veeramacheneni (2003). Openness and
economic growth: empirical evidence on the relationship between
output, inward FDI, and trade. Journal of Business Strategies, 20.
[4] Hassan and Kamrul, A F, (2005). Trade openness and economic growth:
Search for a Causal Relationship. South Asian Journal of Management.
Retrieved on 25th December,2010 from
http://findarticles.com/p/articles/mi_qa5483/is_200510/ai_n21363857/?
tag=content;col1
[5] Klasra, M. Ahmad (2009). Foreign direct investment, trade openness
and economic growth in Pakistan and Turkey: an investigation using
bounds test. Retrieved on 25th December,2010 from
http://www.springerlink.com/content/w11nA14p1526m0107/
[6] World Bank. (2008). World Development Indicators [CD Rom 2009].
World Bank, Washington, D.C.
[7] Kemal, A. R., Musleh Ud Din, Q. Usman, F. Lloyd and S. Sirimevan
(2002). Exports and economic growth in South Asia, A Study Prepared
for the South Asia network of Economic Research Institutes.
[8] Ahmed and Ghani (2007). South Asia growth and regional integration.
World Bank Publication.
[9] Dollar, D. (1992). Outward-oriented developing economies really do
grow more rapidly: Evidence from 95 LDCs, 1976-1985. Economic
Development and Cultural Change. 40(3), 523-44.
[10] Harrison (1996).Openness and growth:A time series cross country
analysis for developing countries. National Bureau of Economic
Research. Working paper no.5221.
[11] Frankel, J. and Romer, D. (1999). Does trade cause growth? The
American Economic Review, 89(3).
[12] Rodriguez, F. and Rodrik, D. (2001). Trade policy and economic
growth: A Asceptic's guide to the cross-national evidence. In
Macroeconomics annual 2000, ed. Ben Bernanke and Kenneth S.
Rogoff . Cambridge: MIT Press.
[13] David, D. and Kraay, A. (2002). Trade, growth and Poverty.
Development Research Group, The World Bank.
[14] Din, Musleh-ud (2004). Exports, imports, and economic growth in
South Asia: Evidence using a multivariate time-series framework. The
Pakistan Development Review.43(2),105-124.
[15] Sarkar P. (2007). Trade openness and growth: Is there any link? MPRA
Paper No. 4997, 04:22.
[16] Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in
heterogeneous panels. Journal of Econometrics, 115, 53-74
[17] Maddala, G.S., and Wu. S. (1999). A comparative study of unit root
tests with panel data and a new simple test. Oxford Bulletin of
Economics and Statistics, 61, 631-652.
[18] Levin, A., Lin, C.F., and Chu, C.S. (2002). Unit root tests in panel data:
asymptotic and finite-sample properties. Journal of Econometrics, 108,
1-24.
[19] Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample
properties of pooled time series tests with an application to PPP
hypothesis: new results. Econometric Theory, 20(3), 597-627.
[20] Kao, C. (1999). Spurious regression and residual-based tests for
cointegration in panel data. Journal of Econometrics, 90 (1), 1-44.
[21] Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated
panels, nonstationary panels, panel cointegration and dynamic panels.
Advances in Econometrics , 15, 93-130.
[22] Engle, R.F., and Granger, C.W.J. (1987). Cointegration and error
correction: representation, estimation, and testing. Econometrica, 55,
251-276.
@article{"International Journal of Business, Human and Social Sciences:54570", author = "Samra Bajwa and Muhammad W. Siddiqi", title = "Trade Openness and Its Effects on Economic Growth in Selected South Asian Countries: A Panel Data Study", abstract = "The study investigates the causal link between trade
openness and economic growth for four South Asian countries for
period 1972-1985 and 1986-2007 to examine the scenario before and
after the implementation of SAARC. Panel cointegration and
FMOLS techniques are employed for short run and long run
estimates. In 1972-85 short run unidirectional causality from GDP to
openness is found whereas, in 1986-2007 there exists bi-directional
causality between GDP and openness. The long run elasticity
magnitude between GDP and openness contains negative sign in
1972-85 which shows that there exists long run negative relationship.
While in time period 1986-2007 the elasticity magnitude has positive
sign that indicates positive causation between GDP and openness. So
it can be concluded that after the implementation of SAARC overall
situation of selected countries got better. Also long run coefficient of
error term suggests that short term equilibrium adjustments are driven
by adjustment back to long run equilibrium.", keywords = "Causality, Economic Growth, Panel Co-integration,
SAARC, Trade Openness.", volume = "5", number = "2", pages = "152-6", }
