Trade Liberalization and Real Sector Investment Decisions: A Panel Data Evidence from Selected Economies of Asia

Umar Farooq

Journal for Economic Forecasting, 2023, issue 2, 52-71

Abstract: Trade liberalization has a dynamic role in overall economic growth. Any change in trade can change the efficiency of almost all sectors of an economy. Among the others, this study attempts to investigate the role of trade openness in determining real sector investment decisions. For empirical analysis, we consider ten years of data of non-financial sector firms from 11 Asian economies and employ the system GMM model to examine the regression among variables. The statistical results first imply that both accumulated trade openness and import orientation have a statistically significant but inverse relationship with real sector investment decisions. Nonetheless, the export orientation demonstrates the positive significant link with industrial investment. Focusing on export orientation can leverage the industrial investment. The empirical findings suggest important trade-related instructions for Asian economies. Such economies should not follow trade liberalization specifically import orientation because it hampers the growth of the industrial sector. However, Asian economies can expedite the industrial growth regarding new investment by focusing on export orientations. Overall, this study illustrates that trade orientation of a country has a significant contribution in shaping corporate investment decisions. It explores distinct implications of trade orientations in real sector investment decisions.

Keywords: Asian Economies; Capital Investment; Export Orientation; Import Orientation; Trade Openness (search for similar items in EconPapers)
JEL-codes: F10 F14 G31 (search for similar items in EconPapers)
Date: 2023
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