Growth and openness: empirical evidence from Bangladesh

Haq, Munshi Masudul (2008): Growth and openness: empirical evidence from Bangladesh.

Abstract

The study seeks to investigate empirically the direction and shape of causality among trade openness, investment and economic growth using data for Bangladesh during the period 1980-2006. Although in most cases, statistically reliable evidence of cointegration is sufficient to testify the existence of a long-run relationship among the variables of a particular model, Granger causality test provides a more dependable tool for determining the direction of the causality in particular. In order to achieve the objective of the study, modern econometric methodologies such as unit root tests; cointegration tests; and the Granger causality tests have been applied across all the variables of our model using a trivariate framework of regression equations. The test results indicate that there exists a long-run equilibrium relationship between trade openness, national income growth and total investment. Furthermore, empirical results of Granger causality confirm that there exists unidirectional causality between economic growth and investment; between trade openness and economic growth; and between trade openness and investment. The results, however, support the conventional presumption about the relationships between economic growth and investment; and between trade openness and economic growth while contradicts with that between trade openness and investment.

• Item Type: MPRA Paper
• Language: English
• Keywords: openness, trade liberalisation, GDP, national income, economic growth, investment, trivariate causality tests, unit root test, cointegration, long-run equilibrium relationship, Granger causality
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

References

Alcala, F. and Ciccone, A. (2003), “Trade and Productivity” CERR Discussion Paper No. 3095 ( London: Centre for Economic Policy Research).

Ahmed, N. (2001), Trade Liberalization in Bangladesh: An Investigation into Trends, The University Press Limited, Dhaka.

Barro, Robert J.(1991) “Economic growth in a cross section countries” The Quarterly Journal of Economics, Vol. 106, No. 2, (May, 1991), pp. 407-443.

Balassa, B. (1978), “Export and Economic growth”, Journal of Development Economics Vol. 5 (1978) pp.181 -189.

Bashar, O. M and Khan, H. (2007), “Liberalization and Growth: An Econometric Study of Bangladesh”, U21 Global, Working Paper No. 001/2007.

Chang, R., Kaltani, L., and Loayza, N., “Openness can be good for growth: the role of policy complementarities”, World Bank Research Working Paper 3763, November 2005.

Chow, P. (1987) Causality between Export and growth and Industrial Development: Empirical Evidence from the NICs. Journal of Development Economics, Vol. 26, No. 1, pp. 55-63.

Chen, P. P. and Gupta, R. (2006), “An investigation of Openness and Economic Growth Using panel Estimation”, University of Pretoria, Working Paper: 2006-22

Dollar, D., Kraay, A., et al. (2002), “Growth is good for the poor”, The World Bank Research paper, www.worldbank.org/research/growth.

Din, M.,Ghani E., and Siddique O.,(2003) “Openness and Economic Growth in Pakistan” The Pakistan Development Review, Vol. 42:4 Part II, PP.795-807.

Dorwrick, S., and Golley, J., (2004), “Trade openness and growth: Who benefits?”, Oxford review of economic policy, Vol.20, No.1, 2004.

Dollar, D.,(1992). “Outward-oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985”, Economic Development and Cultural Change, Vol. 40, No. 3, (Apr., 1992), pp. 523-544.

Dawson P. J.,(2006) “The export–income relationship and trade liberalisation in Bangladesh” Journal of Policy Modelling Vol. 28 pp. 889–896.

Export promotion Bureau (EPB), Bangladesh, Ministry of Commerce of Peoples Republic of Bangladesh, http://www.epb.gov.bd/index.html.

Economic review (2007 and others years), Ministry of Finance, Governments of the peoples Republic of Bangladesh, http://www.mof.gov.bd/economic/index.php

Edwards, S., (1998) “Openness, productivity and Growth: What do we really know?” The Economic Journal, Vol. 108, No. 447 (Mar., 1998), pp. 383-398.

Edwards, S.,(1993), “Openness, Trade Liberalization and Growth in Developing Countries”, Journal of Economic Literature, Vol. XXXI, Sep1993, pp.1358-1393.

Grossman, G. and E. Helpman (1991), Innovation and Growth in the Global Economy,The MIT Press, Cambridge, MA.

Granger, C. W. (1969) “Investigating causal relations by econometric models and gross spectral methods”, Econometrica, 37,424-38.

Granger, C. W. (1988) Some recent developments in a concept of causality, Journal of Econometrics, 39, 199-21 1.

Harrison, A.(1996), “Openness and Growth : A time series, Cross-country Analysis of developing Countries” Journal of development Economics, Vol.8 (March, 1996), pp.419-447

Harrison, A. and Hanson G. (1999), “Who Gain from Trade Reforme? Some Remaining Puzzle”, Journal of Development Economics, Vol. 59,( June, 1999) pp.125-54.

Huang, C. and Tsai, P. (2007) “Openness, Growth and Poverty: The Case of Taiwan” World development, Vol. 35, No. 11, pp. 1858-1871.

Hasio, P. (1987), “Openness and Export in ASEN countries”, Social Science Research Network, WP0283.

Ingco, M. and Kandiero, T.(2002), “Export Performance of Bangladesh: A Constant Market Share Analysis”, South Asia Economic Journal, Vol. 3, pp.163-74.

Jin, Jang C. (2004) “On the relationship between openness and growth in China: Evidence from provincial time series data”, The world Economy, Vol. 27, No. 10, PP.1571-1582.

Johansen, S. and Juselius, K. (1990), “Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money,” Oxford Bulletin of Economics and Statistics, 52: 169-210.

Johansen, S. and Juselius, K. (1992), “Testing Structural Hypothesis in a Multivariate Cointegration Analysis of the PPP and the UIP for UK,” Journal of Econometrics, 53: 211-244.

Johansen, S. and Juselius, K. (1994), “Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model,” Journal of Econometrics, 63: 7-36.

Krueger,A. and Andrew B.,(2003), “Trade, Growth and Productivity: A selective survey”, International Monetary Fund (2003), Working Paper (WP/03/03).

Krueger, A. O. (1978), “Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences”, Ballinger Publishing Co. for NationalBureau of Economic Research, Cambridge, MA. Kwan, Andy, C. C. and Kwok, B (Apr., 1995). “Exogeneity and the Export-Led Growth Hypothesis: The Case of China” Southern Economic Journal, Vol. 61, No. 4, pp. 1158-1166.

Lee, H. Y., Ricci, L. A. and Rigobon, “Once again, Is openness good for growth?, National Bureau of Economic Research (NBER), September 2004, working paper no. 10749

Lucas, R. E. (1988), “On the Mechanics of Development Planning,” Journal of Monetary Economics, 22: 3-42.

Liu, X., Song, H. and Romilly P, (1997) “An empirical investigation of causal relationship between openness and economic growth in China”. Applied Economics, 1997, Vol. 29, pp. 1679-1686.

Mamun, K. A. and Nath H. K. (2004), “Export-led Growth in Bangladesh: A Time Series Analysis,” manuscript, Sam Houston State University.

Nourzad, F. and Powell, Jenifer J. (2003), Openness, Growth and Development: Evidence from a panel of developing countries”, Scientific Journal of Administrative Development, Vol. 1. No.1.

Nath, H. K. and Mamun, K. B., “Trade liberalization, Growth and Inequality in Bangladesh: An Empirical Analysis” Department of Economics and International Business, Sam Houston State University, Huntsville, TX

Patterson K.(2000) “An Introduction to Applied Econometrics, A time series Approach” Palgrave Publication.

Romer, D. “Advanced Macroeconomics”, Second edition, MaGraw-Hill Publication 2001.

Romer, D. and Frankel, Jeffery, A. “Does Trade Cause Growth?”, The American Economic Review, Vol. 89, No. 3 (Jun., 1999), pp. 379-399

Romer, (D. 1993), “Openness and Inflation : Theory and Evidence” The Quarterly Journal of Economics, Vol. 108, No. 4 (Nov., 1993), pp. 869-903.

Romalis, Jhon, (2006), “Market Access, Openness and Growth”, National bureau of economic research (NBER), Working paper No. 13048.

Rashid, M. A. (2000), “Impact of Trade Policy Reforms on Industrial Capacity and Employment in Bangladesh”, Structural Adjustment Participatory Review Initiative (SAPRI), Dhaka.

Sinha, D., and Sinha, T.,(1999), “Openness, Investment and economic growth in Latin American countries”, paper presented at the sixty third annul meeting of the Midwest Economic Association, Nashvile, Tennnessee.

Sala-i-Martin, X.(1997), “I just run two million regression” The American Economic Review, Vol. 87, No. 2 (May, 1997), pp.178-183.

Sala-i-Martin, X and Barrow, R. J., “Economic Growth” , Second Edition, The MIT Press, Cambridge, MA, USA. Sachs, J. A., and Warner, A.,(1995), “Economic Reform and the Process of Global Integration”, Brookings Papers on Economic Activity, Vol. 1995, No. 1, 25th Anniversary Issue (1995), pp. 1-118 Sachs, J. A., and Warner, A.,(1997), “Fundamental Sources of Long-Run Growth” The American Economic Review, Vol. 87, No. 2, Sarker, P. (2006), “Trade Openness and growth: Is there any link?”, Social Science Research Network, Political Economy Seminar (10 OCTOBER 2006), University of London. UNCTAD, (2006), UNCTAD Handbook of Statistics 2006-2007, United Nations.

UNCTAD, 2007, The Least Developed Countries Report 2007, United Nation, July 2007.

World Trade Organization (WTO), (2006 & 2007), Trade Policy Review on Bangladesh.

World Bank (2008), “World Development Indicators CD-ROM 2008”. http://www.worldbank.org

Yanikkaya, Halit (2003), “Trade openness and economic growth: A cross-country empirical investigation”, Journal of Development Economics, Vol. 72, pp.57-89.