Relationship between Trade Openness and Economic Growth: Evidence from Panel Causality Analysis

The main purpose of this study is to investigate the causal relationship between trade openness and economic growth using the panel data of 125 countries for the period 1992-2015. For this purpose, a three-stage panel Granger causality test has been employed. Countries were divided into two groups as developed and developing countries. In the first stage panel unit root test has been used in order to explore stationarity properties of the series. Then panel co-integration technique has been employed in order to estimate long-run economic relationships between variables. In the last stage panel causality test has been adopted. According to the findings obtained there is unidirectional short-term causality running from trade openness to economic growth both in developed and developing countries. Policy makers should implement appropriate economic policies to take full advantages of trade openness.