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

  • Asma Arif

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

  • Hasnat Ahmad

    (Curtin Business School, Curtin University, Australia)

Registered author(s):

    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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    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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    1. 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.
    2. Panagiotis Liargovas & Konstantinos Skandalis, 2012. "Foreign Direct Investment and Trade Openness: The Case of Developing Economies," Social Indicators Research, Springer, vol. 106(2), pages 323-331, April.
    3. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series 809, The World Bank.
    4. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
    5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    6. Talan Iscan, 1998. "Trade Liberalization and Productivity-A Panel Study of the Mexican Manufacturing Industry," Department of Economics at Dalhousie University working papers archive tradelib, Dalhousie, Department of Economics.
    7. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-98, March.
    8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    9. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
    10. 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.
    11. 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.
    12. 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, vol. 48(3), pages 253-77, August.
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