This paper examines the impact of trade openness on economic growth in south africa. Trade openness on nigeria economic growth was tested using vecm and granger causality test to estimate the relationship. Trade openness economic growth international trade openness is a channel through which fdi, capital inputs, goods and services flow to host countries or regions. The role of trade policy in economic development has been a key matter of debate in the development literature. Impact of trade openness and human capital on economic. The effects of internet usage, financial development and. A new data set of on openness indicators and trade liberalization dates allows the 1995 sachs and warner study on the relationship between trade openness and economic growth to be extended to the 1990s. Our result suggest that the positive sign of the coefficient of non oil export, trade openness. Trade, foreign direct investment and economic growth. The study employs the autoregressive distributed lag ardl bounds testing approach to investigate the dynamic impact of trade openness on economic growth. The paper empirically analyzes the impact of trade openness on the economic growth in kenya over the period 19702014. A time series analysis hrushikesh mallick july 2008 i acknowledge the valuable suggestions received from dr.
The impact of degree of trade openness on economic growth proves to. The relationship between trade openness and economic growth is ambiguous from both theoretical and empirical point of view. The significant and positive coefficients for both mgdp and xgdp in columns 3 and 4, 0. In fact, the gatt final uruguay round which was completed in 1994 prompted the establishment of the world trade organization wto. Download the full materials from chapter one to five with reference and abstract. Later, during the neoclassic period, these two theories of the economic thought became autonomous relatively to each other. This result suggests that different trade structures in lowincome and highincome countries have different effects on economic growth.
The theoretical propositions reveal that while trade openness leads to a greater economic efficiency, market imperfections, differences in technology and endowments may lead to adverse effect of trade liberalisation on individual countries. The study establishes that there is strong unidirectional causality from trade openness to economic growth, but foreign direct investment fdi does not have an impact on growth. Theoretical frameworks are often based on the concept of comparative advantage and assign an at least transitory positive growth e. In the 1990s, the washington consensus, a set of 10 major development policy. The findings of busse and koniger 2012, marelli and. Our crosscountry panel data analysis of a sample 51 countries of the south during 19812002 shows that. These results, therefore, suggest that the promotion of policies that support international trade is relevant in the south african economy. Kim and lin 2009 found that trade openness contributes to longrun economic growth, with effects varying according to the level of economic development.
The econometric methodology employed was the cointegration and granger causality test. The stationarity properties of the data and the order of integration of. According to dominating economic theory, this restrictiveness, this lack of trade openness, will have an economic effect of slowing economic development growth. Trade openness, complementarities, growth this paper was prepared for the dr. In this case, the growth rate of income increases one period and then it is back to the normal rate. This paper aims to evaluate the determinants of growth in asean5 countries malaysia, indonesia, thailand, philippines and singapore with a special highlight is given to the foreign direct investment fdi. Facilitates global integration into global markets iyoha and oviakhi, 2002. The causal relationship among financial development, trade. However, a similar level of trade openness can hide different types of trade structures. Shusanta kumar mallick, faculty at loughborough university, uk and the participants in an open seminar at cds, trivandrum held in january 2008. The relationship between trade openness and economic. High population growth, a relative lack of energy supplies and capital investments in infrastructure, and bad governance with high corruption in the public sector hinder its economic development.
Openness to international trade was seen to positively influence economic growth and grangercausality test revealed a bidirectional causality between openness and economic growth. The study employs four indicators of trade openness, which include three trade based proxies and an index of trade openness. The mixed results might be attributed to analytical framework and country specific characteristics. Empirical analysis of the effects of trade openness on. Trade openness, economic growth and unemployment reduction in. Evidence on the role of complementarities for cafta. International trade and its effects on economic growth in china international trade, as a major factor of openness, has made an increasingly significant contribution to economic growth. We applied the unit root tests to examine the level of stationarity and found that all variables were integrated at first difference.
The results further showed that trade openness has a positive impact on economic growth. We selected two geographically distributed regions western and southern asia based on difference in their gdp per capita. Then again, some studies investigating the link between trade openness and economic growth propose that trade openness has a negative impact on economic growth adhikary, 2011. The aim of this study is to analyze the impact of trade openness and human capital on economic growth in 19 asian countries from 1985 to 2017. Based on existing literature, therefore, there is no clear consensus regarding the impact of trade openness on economic growth. Impact of trade openness on economic growth of nigeria mensch. These empirical results have important policy implications for lesotho. Determination of individual economic growth as a function of fdicapita, exchange rate, capitallabor ratio and trade openness capita. Pdf on may 14, 2018, rm malefane and others published impact of trade openness on economic growth. Financial development, financial openness, and economic growth. Past studies of trade openness on economic growth have found various results, there is however evidence that there is both positive impact and negative impact of trade openness on economic growth. Wto is aimed to improve the standard of living of people in the member countries, ensure full employment and broad. Trade openess and economic growth in nigeria 1981 2009. The study employs the autoregressive distributed lag ardl bound testing approach to investigate the dynamic impact of trade openness on economic growth.
Trade openness is conducive to economic growth in lowinflation countries but has insignificant impact on growth. This article is devoted to the role of foreign trade in the economies of china, the united states, russia and germany. Trade openness and economic growth anh dao illinois wesleyan university 1. On the other hand, real economic growth affected favorably unemployment rates in these group of countries. Openness to trade has negative effect on growth in countries with low financial development, but has insignificant impact in countries with high financial development. The relevance of the study is to analyze the process of integrating countries into international trade and its impact on the development of countries. These are sources of economic growth to developing countries. The study empirically examined the impact of trade openness on economic growth in nigeria. The relationship between trade openness and economic growth has. Trade openness is the liberalization that has generated new markets. Pdf trade and financial openness and economic growth in.
However, in nigeria trade openness has a negative but insignificant effect on economic growth. Empirical research indicates that the most rapidly growing countries tend to have high rates of. In ghana trade openness has a positive impact on economic growth and significant at the 1% level. Unlike some previous studies, the current study uses four proxies of trade openness, with each proxy addressing a different aspect of trade openness. This article is an attempt to examine the comparative effect of. Empirical evaluations, however, have been complicated by a number of factors. Impact of fdi and trade openness on economic growth. This may indicate to a limited positive effect of trade liberalization and fdi on real economic growth in the case of jordan. Impact of trade openness on economic growth among ecowas.
Financial development, financial openness, and economic growth this paper examines the importance of financial development and openness. The relationship between trade openness and economic growth has been extensively investigated yielding to mixed and inconclusive results. What is trade openness and what is the effect of trade. This might be attributed to the omission of the role of capital stock and labor in the tradegrowth nexus. Empirical analysis of the effects of trade openness on economic growth. Impact of trade openness on economic growth among ecowas countries. This paper examines the dynamic impact of trade openness on economic growth in lesotho using the autoregressive distributed lag ardl bounds testing approach. Third, is to provide empirical evidence on the relationship between international trade, fdi and economic growth in transition countries. Based on the panel estimation methods, the empirical results confirm the long. As discussed in edwards 1993, earlier empirical growth studies put too much emphasis on the growth of exports to classify countries according to trade openness, while they largely ignored import sectors and their growth effects. The development model adopted by morocco since the 80s is characterized by the opening and conduct of structural reforms in favor of the conclusion of many free trade agreements, has had a significant impact both on depth strategic country and the.
Marelli and signorelli 2011 reported a positive impact of trade openness on economic growth in china and india over a period 1980 and 2007 using a panel data analysis, and nowbutsing 2014 found a positive relationship between trade openness and economic growth for indian ocean rim. Impact of trade openness and human capital on economic growth. Empirical results on the links between trade openness and economic growth often suggest that, in the long run, more outward. The main conclusion that come out of this analysis is that trade openness is playing the expected favorable effect on unemployment in the arab region. Herzer 20 found that the impact of trade openness is positive for developed countries and negative for developing ones. New evidence on the time paths of economic growth, physical capital investment, and openness around episodes of trade. Trade openness and foreign direct investments coefficients although very small in size but are highly significant indicating to positive effect of both openness indicators on economic growth. Hye and lau 27 examine the link between trade openness and economic growth and find a negative and unstable impact of trade openness index on economic growth throughout the sample in the long. The empirical result shows that trade liberalization has positive and significant impact on economic growth. If, on the other hand, a change in the trade policy induces consecutive increases in the income level such that the growth rate is above normal in many periods, then the policy change elicits growth effects. The impact was found to be positive in some studies and nonsignificant or even negative in others. The aim of this paper was to enrich the way of measuring trade openness taking. Khan and qayyum 2005 studied the data on trade openness, real interest rate, financial development and economic growth for the time period 19612005 in order to find out the impact of the above variables on the economic growth of pakistan.
International trade and its effects on economic growth in. The link between openness and longrun economic growth. However, in the shortrun, when the first three proxies of openness are used, the study finds trade openness to have a positive impact on economic growth, but not so when the trade openness index is employed. The results show that there is a trade threshold below which increased trade openness has beneficial effects on economic growth and above which the trade effect on growth declines. In this epoch, it was believed that international trade has a positive effect on the economic growth. Pdf the impact of foreign direct investment, domestic. Introduction trade liberalization has been central to the discussion of development policy in recent decades. Trade openness facilitate economic growth by the exploitation of economics of scale, reduce the obligatory constraint to allow increases in the import of capital and intermediate goods. Dash and sharma 2008, applied engle and granger twostep co integration analysis for the time period 19502007 and recognized that trade has a positive impact on economic growth. The present study examines the relationship between openness trade gdp ratio and growth.
Indeed, the results oppose the neoclassical growth models, where trade openness has no impact on the longrun growth rate of an economy. Chinese international trade has experienced rapid expansion together with its dramatic economic growth which has made the country to target the world as its market. Our empirical results pointed out that domestic investment positively influences economic growth. It discusses the results of an empirical analysis between both variables and economic growth. The effects of internet usage, financial development and trade openness on economic growth in south africa. Hye and lau 2015 examined the link between trade openness and economic growth in india. Unlike some previous studies, the current study uses four proxies of trade openness, with each proxy addressing a different aspect of trade. A time series analysis abstract this study estimates the effects of internet usage, financial development and trade openness on economic growth using annual time series data for south africa for the period 199120.
Traditional trade theory predicts growth gains from openness at the country level through specialization, investment in innovation, productivity improvement, or enhanced resource allocation. Pdf the major objective of this paper is to examine the relationship among economic growth rate, gdp per capita, life expectancy. The relationship between trade openness and economic growth. It is a catalyst to economic growth through productivity of export obadan, 1993. Despite the positive impact of trade openness on economic growth and development, it was not considered comprehensively when studying the resource curse, aside from a brief discussion in a few studies. One of the policy measures of the structural adjustment programme sap introduced in 1986 is trade openness.
A time series analysis in the context of bangladesh article pdf available. We applied the unit root tests to examine the level of stationarity and found that all variables were integrated at first. The impact of trade openness, foreign direct investment. The results show that trade openness has positive effects on eco nomic growth both in the short and long run. Impact of trade openness on economic growth of nigeria. The impact of trade openness on economic growth econstor. However, only limited studies explicitly recognize the fact that before there can be economic growth in an economy. The objective of this paper is to examine the impact of openness, foreign investment inflows, and domestic investment on economic growth for the case of 24 asian economies over the time span 20022017 through the use of the fixed and random effect models. The balance of foreign trade turnover fell to the lowest values 1084, 5 billion dollars. Consequently, the importance of international trade was neglected in the context of economic growth. The study employs the autoregressive distributed lag ardl bounds testing approach to investigate the dynamic. The impact of trade openness on economic growth is a subject of debate in the existing literature. The study employed ordinary least square regression to find out the relationship between trade openness and economic growth. Trade openness increases real gdp per capita in a resourcerich country in different ways.
The empirical results of this study show that trade openness has no significant impact on economic growth in both the short run and long run irrespective of which proxy of trade openness is used. The impact of trade openness, foreign direct investment and. In the following section, we turn to some of the most cited empirical analyses of the relationship between international trade and growth. In another study conducted in india, hye and lau 2015 examine the link between trade openness and economic growth in india using the trade openness index to measure the impact of trade openness on economic. The purpose of this study was to examine the causal relationship among financial development, trade openness and economic growth in nigeria for the period 19702005. The impact of trade openness on the economic growth of. Trade openness is conducive to economic growth in lowinflation countries but has insignificant impact on growth in highinflation countries. Pdf the impact of trade openness on economic growth. The relationship between trade openness, foreign direct. The impact of trade openness on nigeria economic growth within the sample period of 19812016 pdf. The empirical results of this study show that trade openness has no significant impact on. Unlike some previous studies, the current study uses four proxies of trade openness. The research indicates a negative and unbalanced effect of trade openness on.
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