The Impact of Trade Openness on Economic Growth in Pakistan; ARDL Bounds Testing Approach to Co-integration

Author

SDM Education Department, Dera Ismail Khan District, Pakistan.

Abstract

This paper's main objective was to investigate the impact of trade openness on economic growth in Pakistan. We have employed the Johansen and Autoregressive Distributed Lag (ARDL) Co-integration together with ECM Techniques for the period 1975-2016. The empirical estimated results are the sound evidence that there exists a short-run and long-run positive and stable cointegration among the variables. Our empirical findings show that trade openness and foreign direct investment significantly impact Pakistan's economic growth. Moreover, the Granger causality test also confirms the bidirectional causality between trade openness and economic growth. It is, therefore, concluded that trade openness can play a vital role as the economic growth of Pakistan is concerned.

Keywords

References

Afzal, M. (2009). Impact of Trade Liberalization on Economic Growth of Pakistan. Pakistan Development Review, 7, 68-79.
Anorou, E., & Ahmad, Y. (1999). Openness and Economic Growth: Evidence from Selected Asian Countries. Indian Economic Journal, 47(3), 110-117.
Atif, R. M., Jadoon, A., Zaman, K., Ismail, A., & Seemab, R. (2010).Trade Liberalization, Financial Development, and Economic Growth: Evidence from Pakistan (1980-2009). Journal of International Academic Research, 10(2), 30-37.
Brooks, C. (2014). Introductory Econometrics for Finance. New York: Cambridge University Press.
Darrat, A. F. (1999). Are Financial Deepening and Economic Growth Causality Related? Another Look at the Evidence. International Economic Journal, 13(3), 19-35.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366a), 427- 431.
Fosu, O. E., & Magnus, F. J. (2006). Bounds Testing Approach to Cointegration: An Examination of Foreign Direct Investment, Trade, and Growth Relationships. American Journal of Applied Sciences, 3(11), 2079-2085.
Godfrey, L. G. (1978). Testing Against General Autoregressive and Moving Average Error Models when the Regressors Include Lagged Dependent Variables. Econometrica: Journal of the Econometric Society, 46(6), 1293-1301.
Gorgi, E., & Alipourian, M. (2008). Trade Openness and Economic Growth in Iran, and Some OPEC Nations. Iranian Economic Review, 13(22), 31-40.
Granger, C. W. J. (1988). Some Recent Developments in the Concept of Causality. Journal of Econometrics, 39, 199- 211.
Jawaid, S. T. (2014). Trade Openness and Economic Growth A Lesson from Pakistan. Foreign Trade Review, 49(2), 193 -212.
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12(6), 231 - 254. 
Johansen, S., & Juselius, K. (1990). Maximum likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money. Oxford Bulletin of Economics, 52(2), 169 -210.
Muhammad, S. D., Hussain, A., & Ali, S. (2012). The Causal Relationship between Openness and Economic Growth: Empirical Evidence in the Case of Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 6(2), 382- 391.
Pesaran, H. M., & Pesaran, B. (1997). Working with Microfit 4.0: An Introduction to Econometrics. London: Oxford University Press.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approach to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289 -326.
Ramsey, J. B. (1969). Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis. Journal of the Royal Statistical Society, Series B (Methodological), 350- 371.
Shabbir, A. N. (2006). Trade Openness and Economic Growth. Pakistan Economic and Social Review, XLIV(1), 137-154.
Shaheen, S., & Kauser, M. M. (2013). Impact of Trade Liberalization on Economic Growth in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 5(5), 228 -240.
Siddiqui, A. H. (2005). Impact of Trade Openness on Output Growth for Pakistan: An Empirical Investigation. The Journal of Market Forces, 1(1), 3 -10.
Wacziarg, R. (2001). Measuring the Dynamic Gains from Trade. World Bank Economic Review, 15(3), 393-429.
White, H. (1980). A Heteroscedasticity-consistent Covariance Matrix Estimator and a Direct Test for Heteroscedasticity. Econometrica: Journal of the Econometric Society, 48(4), 817- 838.
Yanikkaya, H. (2003). Trade Openness and Economic Growth: A Cross-country Empirical Investigation. Journal of Development Economics, 72(1), 57- 89.
Zafar, M., Sabri, P. S. U., Ilyas, M., & Kousar, S. (2015). The Impact of Trade Openness and External Debt on Economic Growth: New Evidence from South Asia; East Asia and the Middle East. Science International, 27(1), 509- 516.
Iranian Economic Review
Volume 24, Issue 3
September 2020
Pages 675-705

Files

Share

How to cite

Statistics