Trade Openness and Its Effects on Economic Growth in Selected South Asian Countries: A Panel Data Study

The study investigates the causal link between trade openness and economic growth for four South Asian countries for period 1972-1985 and 1986-2007 to examine the scenario before and after the implementation of SAARC. Panel cointegration and FMOLS techniques are employed for short run and long run estimates. In 1972-85 short run unidirectional causality from GDP to openness is found whereas, in 1986-2007 there exists bi-directional causality between GDP and openness. The long run elasticity magnitude between GDP and openness contains negative sign in 1972-85 which shows that there exists long run negative relationship. While in time period 1986-2007 the elasticity magnitude has positive sign that indicates positive causation between GDP and openness. So it can be concluded that after the implementation of SAARC overall situation of selected countries got better. Also long run coefficient of error term suggests that short term equilibrium adjustments are driven by adjustment back to long run equilibrium.