The trade led-growth hypothesis in China and G8 countries: pooled mean group estimation

Khalid Usman

International Journal of Computational Economics and Econometrics, 2024, vol. 14, issue 4, 423-448

Abstract: This research aims to examine the trade-led growth (TLG) hypothesis, especially the relationship between trade openness (TRA) and economic growth (GDP) in China and G8 (UK, Russia, Canada, USA, France, Italy, Germany, Japan) economies with two threshold variables, labour force (LF) and gross fixed capital formation (GFC). The study explores cointegration among these variables and evaluates their short and long-term effects utilising data from 1992 to 2021. Different tests, including CADF unit root, Westerlund panel cointegration, and pooled mean group estimation (PMG), are used while considering cross-section dependence (CD) and D-H tests. The PMG estimator identifies a positive long-term impact of GFC on GDP in both China and the G8 economies. Conversely, the D-H test exposes no causal relationship between GDP, labour force and gross fixed capital, and trade and gross fixed capital. These findings recommend that policymakers should prioritise trade development by spending on capital formation and labour production to improve economic growth. Furthermore, adopting amplified trade cooperation between China and G8 economies is suggested.

Keywords: trade openness; economic growth; pooled mean group estimation; PMG; D-H test; trade-led growth hypothesis; China; G8 countries. (search for similar items in EconPapers)
Date: 2024
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