Trade openness and economic growth: Further evidence without relying on data stationarity

Abstract

Purpose – The purpose of this paper is to investigate the relationship between trade openness and economic growth in developing countries. Under this aim, the co-integration relationship between trade openness and economic growth of 17 developing countries is examined without relying on data stationarity. Design/methodology/approach – The co-integration relationship between trade openness and economic growth is analyzed by Bounds testing approach developed by Pesaran et al. In addition to this, the causality relationship is tested by causality analysis developed by Toda and Yamamoto. Findings – According to the Bounds test results, co-integration relationship has been detected for six countries and long-term coefficients among the variables have been found positive and statistically significant. According to the Toda and Yamamoto causality analysis, causality has been detected for eight countries. In four of these, the direction of causality is from trade openness to economic growth and in the other four, vice versa. Originality/value – The methodology employed provides an alternative framework for examining relationship among economic variables. The paper shows how to create co-integration and causality tests without relying on data stationarity, which is a major problem in time series of economic variables. On the empirical side, it adds new empirical results into the literature in the name of identification of relationship between trade openness and economic growth in developing countries.