Macroeconomic determinants of trade openness: empirical investigation of SAARC region
| Published date | 08 May 2018 |
| DOI | https://doi.org/10.1108/JABS-12-2015-0207 |
| Date | 08 May 2018 |
| Pages | 151-161 |
| Author | Muhammad Tahir,SAF Hasnu,Mario Ruiz Estrada |
| Subject Matter | Strategy,International business |
Macroeconomic determinants of trade
openness: empirical investigation of
SAARC region
Muhammad Tahir, SAF Hasnu and Mario Ruiz Estrada
Abstract
Purpose –Trade openness plays a significantrole in the growth process of countries. The purpose of
this paperis to examine the impact of macroeconomicdeterminants on the trade openness of countries.
Design/methodology/approach –The study focuses on the South Asian Association for Regional
Cooperation (SAARC) member countries and the data used were from 1971 to 2011. Panel data
econometrics techniques and two stages least square method (TSLS) are used to carry out empirical
analysisand robustness testing.
Findings –The main finding of thepaper is that macroeconomic determinants suchas investment both
in physical and human capital and per capita gross domestic product (GDP) positively affect trade
openness. Further, the size of labour force and currency exchange rate has also impacted trade
opennessnegatively and significantly.
Practical implications –It implies that efficient macroeconomic management matters for highertrade
openness. The sampled developing countries are suggested to pay favourable attention to
macroeconomicvariables if they want to grow in the longrun through outward-oriented policies.
Originality/value –This paper is an original contributionin the context of SAARC countries by focusing
on the relationshipbetween macroeconomic determinantsand trade openness.
Keywords SAARC, Trade openness, Macroeconomics
Paper type Research paper
1. Introduction
It has been witnessed in recent years that the world is moving towards economic
integration. Survival without economic integration in the world economy is almost
impossible. The growth experience of the Asian Tigers such as Singapore, Taiwan, South
Korea and the city state of Hong Kongis an indication that integration in the world economy
is a pre-requisite for high economic growth. After liberalizing the trade regimes, the giant
economies of China and India have also performed well economically (Irwin, 2009). The
international organizations such as the World Trade Organization (WTO), which is the
predecessor of the General Agreement on Tariffsand Trade (GATT), International Monetary
Fund (IMF) and World Bank, is constantly advising policymakers, especially in the
developing countries to move towards more liberal regimes. They claim that such a policy
actions would put them on the right trackof economic growth.
The reason for the increasing economic integration is quite obvious. Higher liberalized
regimes (increased trade openness) are linked with higher growth rates. Economic growth
matters (Baldwin and Forslid, 1998) and thus it is rightly considered as the ultimate goal of
all economic activities. Higher growth is associated with improved standard of living.
Poverty and unemployment are big hurdles to improved standard of living, particularly, in
Muhammad Tahir is
Assistant Professor at the
Department of
Management Sciences,
COMSATS Institute of
Information Technology,
Abbottabad, Pakistan.
SAF Hasnu is based at the
Department of
Management Sciences,
COMSATS Institute of
Information Technology,
Abbottabad, Pakistan.
Mario Ruiz Estrada is
Professor at the
Department of Economics,
Faculty of Economics and
Administration, University
of Malaya, Kuala Lumpur,
Malaysia.
Received 17 December 2015
Revised 13 March 2016
26 June 2016
21 September 2016
Accepted 20 November 2016
DOI 10.1108/JABS-12-2015-0207 VOL. 12 NO. 2 2018, pp. 151-161, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 151
To continue reading
Request your trial