Trade openness and economic growth: empirical evidence from India

Abstract

The main objective of this study is to develop first time trade openness index and use this index to examine the link between trade openness and economic growth in case of India. This study employs a new endogenous growth model for theoretical support, auto-regressive distributive lag model and rolling window regression method in order to determine long run and short run association between trade openness and economic growth. Further granger causality test is used to determine the long run and short run causal direction. The results reveal that human capital and physical capital are positively related to economic growth in the long run. On the other hand, trade openness index negatively impacts on economic growth in the long run. The new evidence is provided by the rolling window regression results i.e. the impact of trade openness index on economic growth is not stable throughout the sample. In the short run trade openness index is positively related to economic growth. The result of granger causality test confirms the validity of trade openness-led growth and human capital-led growth hypothesis in the short run and long run.

Keywords:

• trade openness
• human capital
• economic growth
• ARDL
• Ng-Perron
• India

JEL Classification:

• F13
• O4

Additional information

Notes on contributors

Qazi Muhammad Adnan Hye

Qazi Muhammad Adnan HYE, M. Phil in Economics, PhD student at the University of Malaya, Faculty of Economics and Administration. The research interests are liberalization policies and macroeconomic modeling. He is the author of articles in various journals: Quality & Quantity-International Journal of Methodology, Journal of Risk Finance, Chinese Management Studies, China Agricultural Economic Review, Journal of Chinese Economic and Foreign Trade Studies, Asia Pacific Journal of Tourism Research, International Journal of Economic Perspectives, Banking and Finance Letters, The Asian Economic Review, and other journals. He is the editor of Asian Economic and Financial Review published by Asian Economic and Social Society.

Wee-Yeap Lau

Wee-Yeap, LAU is currently the Head, Department of Applied Statistics at Faculty of Economics & Administration, University of Malaya. He has been a visiting Scholar at Risk Management Institute National University of Singapore. He completed both his PhD and Master of Economics at Osaka University under the Monbusho Scholarship from Ministry of Education in Japan.