The role of trade openness for industrial sector development: panel data evidence from SAARC region
| Published date | 04 January 2016 |
| Date | 04 January 2016 |
| DOI | https://doi.org/10.1108/JABS-01-2015-0007 |
| Pages | 93-103 |
| Author | Muhammad Tahir,Mario Ruiz Estrada,Imran Khan,Muhammad Asim Afridi |
| Subject Matter | Strategy,International business |
The role of trade openness for industrial
sector development: panel data evidence
from SAARC region
Muhammad Tahir, Mario Ruiz Estrada, Imran Khan and Muhammad Asim Afridi
Muhammad Tahir is
Assistant Professor at the
Department of
Management Sciences,
Comsats Institute of
Information Technology,
Abbottabad, Pakistan.
Mario Ruiz Estrada is
Professor at the
Department of
Economics, University of
Malaya, Kuala Lampur,
Malaysia. Imran Khan is
Assistant Professor at the
Department of
Management Sciences,
Comsats Institute of
Information Technology,
Abbottabad, Pakistan.
Muhammad Asim Afridi is
Assistant Professor at
Comsats Institute of
Information Technology,
Abbottabad, Pakistan.
Abstract
Purpose –The purpose of this study is to focus on South Asian Association for Regional Cooperation
(SAARC) member economies to examine the impact of trade openness on the industrial sector
development.
Design/methodology/approach –Panel data econometric techniques are used to the data for the
period 1980-2013 for the selected six countries, namely, Bangladesh, Bhutan, India, Nepal, Pakistan
and Sri Lanka.
Findings –It is found that trade openness has positively and significantly influenced the industrial
sector of the sampled countries. Other determinants such as education and investment have also
played a key role in helping the selected developing countries to develop their industrial sectors.
Practical implications –The study suggests the policy-makers of the SAARC member countries to
liberalize international trade substantially to enhance the contributions of industrial sector toward gross
domestic product (GDP) and to achieve the dreamed goal of sustainable long-run growth for the region.
Originality/value –An explicit relationship between trade openness and industrial sector of the SAARC
member economies is yet to be examined.
Keywords International business, Econometrics
Paper type Research paper
1. Introduction
In economic literature, the relationship between trade liberalization and economic growth
has been tested rigorously; pioneering studies on the topic include the studies by Balassa
(1971),Krueger and Bhagwati (1978),Michaely (1977) and Edwards (1993) that examined
the structure of protection in developing countries and presented that import substitution
industrialization (ISI) policies lost favor when it became clear that countries pursuing import
substitution were not catching up with advanced countries. The high-cost import
substitution activities adversely affected economic growth, and in the absence of foreign
competition, domestic consumers of less developing countries (LDCs henceforth)
consumed substandard and lower-quality products at high prices because there was very
little incentive for domestic producers to increase quality. Empirical findings of Dollar
(1992),Sach and Warner (1995),Harrison (1995),Edwards (1998),Frankel and Romer
(1999),Dollar and Kraay (2002),Greenaway et al. (2002) and Dufrenot et al. (2009) provide
a firm support to the hypothesis that trade openness improves economic growth. However,
the empirical literature has not yet reached a point of consensus, and developing countries
still resist the global trade agreements in the World Trade Organization’s (WTO henceforth)
ministerial rounds due to the wide disparities between rich and poor countries over several
divisive agendas, in particular the bitter disputes over agricultural policies (Devadoss,
2006). Rodrik and Rodriguez (2000) and Rodriguez (2007) argued that studies in which
positive relationship between trade openness and growth was found have either measured
the trade openness variable wrongly or have used poor econometric techniques, which
might have resulted in a positive impact of trade openness on economic growth.
Received 24 January 2015
Revised 14 May 2015
28 July 2015
Accepted 1 August 2015
DOI 10.1108/JABS-01-2015-0007 VOL. 10 NO. 1 2016, pp. 93-103, © Emerald Group Publishing Limited, ISSN 1558-7894 JOURNAL OF ASIA BUSINESS STUDIES PAGE 93
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