Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan
AbstractOne of the more celebrated propositions found in international trade is the case that trade liberalization is associated with declining prices, so that protectionism is inflationary. In line with this view, Romer (1993) postulates the hypothesis that inflation is lower in small and open economies. The objective of this study is to examine Romer’s hypothesis in Pakistan. For this purpose, we have used multivariate cointegration and a vector error correction model. The study covers the period from 1960 to 2007. The empirical findings under the cointegration test show that there is a significant negative long-run relationship between inflation and trade openness, which confirms the existence of Romer’s hypothesis in Pakistan.
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Bibliographic InfoArticle provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.
Volume (Year): 15 (2010)
Issue (Month): 2 (Jul-Dec)
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Trade openness; inflation; cointegration; vector error correction model; Pakistan.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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