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Growth and openness: empirical evidence from Bangladesh

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  • Haq, Munshi Masudul

Abstract

The study seeks to investigate empirically the direction and shape of causality among trade openness, investment and economic growth using data for Bangladesh during the period 1980-2006. Although in most cases, statistically reliable evidence of cointegration is sufficient to testify the existence of a long-run relationship among the variables of a particular model, Granger causality test provides a more dependable tool for determining the direction of the causality in particular. In order to achieve the objective of the study, modern econometric methodologies such as unit root tests; cointegration tests; and the Granger causality tests have been applied across all the variables of our model using a trivariate framework of regression equations. The test results indicate that there exists a long-run equilibrium relationship between trade openness, national income growth and total investment. Furthermore, empirical results of Granger causality confirm that there exists unidirectional causality between economic growth and investment; between trade openness and economic growth; and between trade openness and investment. The results, however, support the conventional presumption about the relationships between economic growth and investment; and between trade openness and economic growth while contradicts with that between trade openness and investment.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35732.

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Date of creation: 27 Sep 2008
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Handle: RePEc:pra:mprapa:35732

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Related research

Keywords: openness; trade liberalisation; GDP; national income; economic growth; investment; trivariate causality tests; unit root test; cointegration; long-run equilibrium relationship; Granger causality;

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  1. 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.
  2. Xiaming Liu & Haiyan Song & Peter Romilly, 1997. "An empirical investigation of the causal relationship between openness and economic growth in China," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1679-1686.
  3. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, vol. 72(1), pages 57-89, October.
  4. International Monetary Fund, 2004. "Once Again, is Openness Good for Growth?," IMF Working Papers 04/135, International Monetary Fund.
  5. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  6. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers 3095, C.E.P.R. Discussion Papers.
  7. Pei-Pei Chen & Rangan Gupta, 2006. "An Investigation of Openness and Economic Growth Using Panel Estimation," Working Papers 200622, University of Pretoria, Department of Economics.
  8. K. A. Al Mamun & H. K. Nath, 2005. "Export-led growth in Bangladesh: a time series analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 12(6), pages 361-364.
  9. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-44, April.
  10. Chow, Peter C. Y., 1987. "Causality between export growth and industrial development : Empirial evidence from the NICs," Journal of Development Economics, Elsevier, vol. 26(1), pages 55-63, June.
  11. Steve Dowrick & Jane Golley, 2004. "Trade Openness and Growth: Who Benefits?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(1), pages 38-56, Spring.
  12. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
  13. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  14. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
  15. Tsai, Pan-Long & Huang, Chao-Hsi, 2007. "Openness, Growth and Poverty: The Case of Taiwan," World Development, Elsevier, vol. 35(11), pages 1858-1871, November.
  16. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  17. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  18. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  19. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June.
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