The Impact of Trade Openness on Economic Growth in Pakistan; ARDL Bounds Testing Approach to Co-integration

Abstract

T he main objective of this paper was the investigation of the impact of the trade openness on economic growth in Pakistan. We have been employed both the Johensen and Autoregressive Distributed Lag (ARDL) Co-integration together with ECM Techniques for the period 1975-2016. The empirical estimated results are the sound evidence that there exists a short-run and long-run positive and stable cointegration among the variables. Our empirical findings further depict that trade openness and foreign direct investment has a significant positive impact on economic growth in Pakistan. Moreover, the Granger causality test also confirms the bidirectional causality between trade openness and economic growth. It is, therefore, concluded that trade openness can play a key role as the economic growth of Pakistan is concerned.