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Does Trade Openness Affect Long Run Growth? Cointegration, Causality and Forecast Error Variance Decomposition Tests for Pakistan

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  • Muhammad, Shahbaz

Abstract

The study investigates effect of trade openness on economic growth in the long run. We apply the ARDL bounds testing approach to test for a long run relationship and the augmented production function by incorporating financial development as an additional determinant of economic growth using the framework of Mankiw (1992). The results confirm cointegration among the series. In long run, trade openness promotes economic growth. The growth-led-trade hypothesis is vindicated by VECM Granger causality test. The causality is also checked by using the innovative accounting approach.

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  • Muhammad, Shahbaz, 2012. "Does Trade Openness Affect Long Run Growth? Cointegration, Causality and Forecast Error Variance Decomposition Tests for Pakistan," MPRA Paper 37391, University Library of Munich, Germany, revised 10 Mar 2012.
  • Handle: RePEc:pra:mprapa:37391
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    Keywords

    Trade; Growth; Cointegration; Causality; Pakistan;
    All these keywords.

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    • F1 - International Economics - - Trade

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