Do Institutions Mediate the Trade-growth Relationship: Evidence from Emerging Countries

Abstract

ABSTRACT In a globalized world, the identification of proximate determinants of economic prosperity is both demanding and pressing for governments particularly in developing countries. In recent years, the quest to uncover them has led to the shift in focus from conventional economic factors to noneconomic factors. In this backdrop, this study complements the existing literature by empirically investigating the nexus between trade openness, institutional quality and economic growth in five emerging countries. Specifically, it analyzes the trade-growth link and the mediatory role of institutions in different specifications. The study employs an endogenous growth model duly estimated through a contemporaneous correlation expunging an efficient approach called a cross-sectionally augmented autoregressive lag distributed (CS-ARDL) approach. The empirical estimates indicate that imports are fundamental in augmenting economic growth while exports and overall trade openness though having positive impact are statistically insignificant. Institutional infrastructure augments economic prosperity on its own but retorts trade-growth relationship.