Revisiting the Link between Trade Openness and Economic Growth Using Panel Methods

ResearchSquare
Abdul Jalil, Nazia Bibi

Abstract

The link between trade openness and economic growth remains an open question due to the inconclusive findings provided by empirical studies. We argue that the primary reasons for such inconclusive findings are the differences between previous studies regarding their methodologies, samples of countries, measures of trade openness, and duration of analyses. Based on this argument, we reinvestigate the trade-growth nexus through newly developed methodologies for five different subsamples from 1960 to 2017. This study also integrates a robust sample of 82 countries and employs different measures of trade openness. The econometric results support the idea that trade openness induces economic growth. These findings emerge after applying a variety of panel data specifications to the data, including a common correlated effects mean group (CCEMG) estimator and a generalized method of moments (GMM) estimator, which allows for endogeneity between trade and growth. The findings of the study challenge previous empirical results that indicate that trade restrictions promote economic growth. Based on our findings, we can safely claim that trade openness may contribute to economic growth.

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