Determinants of Economic Growth in Emerging Countries Under Structural Breaks Consideration

Abstract

This paper examines the cointegration relationships between economic growth, financial development and trade openness in emerging markets in the presence of structural breaks. The empirical analysis includes 21 emerging countries for 1995-2013, on a quarterly basis. The paper tests for structural changes in the deterministic components of variables in use. Recent econometric techniques are applied in this study to evaluate the presence of structural breaks in the estimated growth equation and to examine the parameters of the model. Existence of the long-run relationships between the series were examined by three alternative cointegration techniques that allow for one, two and unknown number of shifts. The empirical results of the paper indicate a stronger effect of trade openness on economic growth compared to the financial development impact when structural breaks are considered.