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Impact of Trade Openness on Output Growth: Co integration and Error Correction Model Approach

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Author Info

  • Asma Arif

    (University of Wah, Department of Economics, Wah Cantt, Pakistan)

  • Hasnat Ahmad

    (Curtin Business School, Curtin University, Australia)

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    Abstract

    This study analyzed the long run relationship between trade openness and output growth for Pakistan using annual time series data for 1972-2010. This study follows the Engle and Granger co integration analysis and error correction approach to analyze the long run relationship between the two variables. The Error Correction Term (ECT) for output growth and trade openness is significant at 5% level of significance and indicates a positive long run relation between the variables. This study has also analyzed the causality between trade openness and output growth by using granger causality test. The results of granger causality show that there is a bi-directional significant relationship between trade openness and economic growth.

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    Bibliographic Info

    Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

    Volume (Year): 2 (2012)
    Issue (Month): 4 ()
    Pages: 379-385

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    Handle: RePEc:eco:journ1:2012-04-1

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    Web page: http://www.econjournals.com

    Related research

    Keywords: Trade openness; output growth; cointegration; error correction model;

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    References

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    1. Iqbal, Javed & Tahir, Muhammad & Baig, Mirza Aqeel, 2001. "Aggregate import demand function for Pakistan: a co-integration approach," MPRA Paper 23756, University Library of Munich, Germany.
    2. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
    3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
    4. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 4(3), pages 249-73.
    5. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 39(1), pages 31-57, July.
    6. Ann Harrison, 1995. "Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries," NBER Working Papers 5221, National Bureau of Economic Research, Inc.
    7. Siddiqui, Amir Hussain & Iqbal, Javed, 2005. "Impact of trade openness on output growth for Pakistan: an empirical investigation," MPRA Paper 23757, University Library of Munich, Germany.
    8. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, Elsevier, vol. 72(1), pages 57-89, October.
    9. Panagiotis Liargovas & Konstantinos Skandalis, 2012. "Foreign Direct Investment and Trade Openness: The Case of Developing Economies," Social Indicators Research, Springer, Springer, vol. 106(2), pages 323-331, April.
    10. Talan Iscan, 1998. "Trade Liberalization and Productivity-A Panel Study of the Mexican Manufacturing Industry," Department of Economics at Dalhousie University working papers archive, Dalhousie, Department of Economics tradelib, Dalhousie, Department of Economics.
    11. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
    12. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
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