Asymmetric trade openness and economic growth nexus in Pakistan: recent evidence from a non-linear cointegration test

Miguel Rocha de Sousa

CEFAGE-UE Working Papers from University of Evora, CEFAGE-UE (Portugal)

Abstract: Trade openness is often considered an important factor for economic development. Using non- linear autoregressive distributed lag approach of cointegration, we investigate the asymmetric association between trade openness and economic growth together with the share of exports and imports for Pakistan during the period 1972-2017. The results suggest only long run asymmetry. The negative changes in trade openness and imports have a stronger effect on economic growth than the positive changes, while for exports positive changes have a stronger effect on economic growth than the negative changes. Furthermore, the causality test in the short run indicates neutrality hypothesis between trade openness, exports, and imports to economic growth. However, in the long run unidirectional causality exits supported by growth led trade openness, exports led growth and growth led imports hypothesis. Several policy suggestions are recommended based on obtained findings. The newness of the asymmetry we present in dealing with trade openness and economic growth has theoretical consequences for the long run. This is yet relevant as an economic policy tool, not just for Pakistan, but for all relevant countries in a similar framework, e.g. small open Asian economies and alike. Thus, hysteresis or asymmetric behavior in the longer run, can be from this on, be scrutinized by trade policy makers, decision makers, and even think-tanks with this new approach.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:cfe:wpcefa:2021_2022

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