Analyzing the Role of Trade Openness in Economic Growth of Pakistan

Abstract

Trade openness is a vivid indicator of emerging economies & one of the most important determinants of growth. Therefore, quite a number of researchers have endeavored to analyze the significance & impact of trade openness on economic growth for various economies. Generally, the theoretical framework supports the constructive & positive impact of economic openness of a country for its overall economic development; however, there are mixed outcomes of empirical findings, especially for developing countries that experience fluctuations in their economic growth rate. This research work has employed trade to GDP ratio as a proxy variable for trade openness to examine its effect on the growth of Pakistan. The finding of this study does not reveal any considerable effect of trade liberalization during 1972-2016 on the growth of the Pakistan economy. The study concludes its premise based on empirical results that those economies that have a comparative advantage in trade with significant competitiveness usually benefit from liberalization, export promoting, and diversifying policies. The trading partners of Pakistan were and are mostly Western countries that have the comparative advantage of trade over Pakistan. Therefore, the government of Pakistan needs to promote & diversify its exports to those countries in which Pakistan has a comparative advantage in the international market.

On the nexus of innovation, trade openness, financial development and economic growth in European countries: New perspective from a GMM panel VAR approach

“…This implies that 1% and 5% increase in trade openness reduces economic growth by 0.060% for Sweden and 0.030% for the United Kingdom. These results are in line with those found by Rigobon and Rodrik (2005) and Ali and Abdullah (2015).…”

“…Rahman et al (2017) found bidirectional relationships between trade openness and economic growth on major developed and developing countries. In contrast, the work by Rodrik, Subramanian, and Trebbi (2004), Chang et al (2009), Amadou (2013), Eris and Ulasan (2013), and Ulasan (2015) found no effect of trade on economic growth in the long run, while Rigobon and Rodrik (2005), Ali and Abdullah (2015) and Rahman, Saidi, and Ben Mbarek (2020) found a negative relationship between international trade and economic growth in the long run.…”

Impact of Foreign Direct Investment on the Economic Growth of Pakistan

“…The above table shows that FDI has positive and significant impact on the economic growth of Pakistan which is referred by the findings of Amina et al,. As well as, Trade openness has a positive and significant effect on economic growth which is referred by the study of Ali et al,(2015). While population positive and significant impact on the economy which is referred by the findings of Ali et al, (2013).…”

“…while the inflation has a detrimental impact on Pakistan's economy. Moreover, Trade openness has a favorable effect on economic growth, while population has a significant effect on the economy (Ali et al, 2015).…”

“…The enduring composition on the impact of new direct endeavor. Also, the audit shows a long-run relationship among Inflow of FDI and Pakistani monetary expansion (Ahmad et al, 2003), Mughal, 2008, Abdullah et al, Khan and Khan, 2011, Younus et al (2014), Zeb et al, 2013, Rahman, 2014, Aqeel and Nishat, 2004, 2015, and Dar et al, 2015. Inflows of FDI moreover engage close by additional theory and conveying in Pakistan.…”