Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 32299
Trade Openness and Its Effects on Economic Growth in Selected South Asian Countries: A Panel Data Study

Authors: Samra Bajwa, Muhammad W. Siddiqi


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.

Digital Object Identifier (DOI):

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2495


[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 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
[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.