Revisiting the link between trade openness and economic growth using panel methods

Abdul Jalil and Abdul Rauf

The Journal of International Trade & Economic Development, 2021, vol. 30, issue 8, 1168-1187

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 disagreement are the differences between previous studies regarding their methodologies, sample selection, measures of trade openness, and duration of analyses. Based on this argument, we reinvestigate the trade–growth nexus by applying newly developed methodologies on a robust sample of 82 countries for the period 1960–2019. Also, this study integrates five region-wise subsamples and use different measures of trade openness. Our econometric results corroborate the view that trade openness induces economic growth. These results emerge after employing a variety of panel methods to data, including common correlated effects mean group (CCEMG) estimator and a system generalized method of moments (system-GMM) estimator, which accounts for cross-sectional dependence, structural breaks and endogeneity between trade and growth. Based on our robust results, we can safely claim that trade openness may contribute to economic growth. The findings of the study question the validity of the empirical results of previous studies which argue that trade restrictions promote economic growth.

Date: 2021
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DOI: 10.1080/09638199.2021.1938638

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