Heterogeneous Impact of Trade on Economic Growth: New Global Empirical Evidence Using Cointegration of Panel Data

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Published: nov. 9, 2020
Keywords:
Economic growth, Commerce, Cointegration, Panel data, Causality

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Paola Chuncho
Universidad Nacional de Loja
Yomara Ruiz
Universidad Nacional de Loja
Johanna Alvarado
Universidad Nacional de Loja

Abstract

This research work aims to examine the effect of trade on economic growth for 125 countries using panel data during 1981-2015. We use data from the World Bank's World Development Indicators (2020). In order to capture the heterogeneity between countries by income level, we classified the countries into six groups: extremely high income (EHIC), high income (HIC), upper-middle-income (UMIC), lower-middle-income (LMIC), low income (LIC), and extremely low income (ELIC). We used cointegration and causality techniques for panel data and found robust empirical evidence showing that trade and economic growth have a short-term and long-term equilibrium relationship in the different income groups, but the strength of the sector is not conclusive. The causality test results indicate that there is a bidirectional causal relationship for the global panel and in the ELICs. Whereas, in EHIC, HIC, and LMIC, we find a unidirectional causal relationship between economic growth and trade. In the PIMAs, there is a unidirectional causality that goes from trade to economic growth. One policy implication derived from our research is that trade fosters economic growth, but the effect is heterogeneous across country groups and extremely small.

Article Details

How to Cite
Chuncho, P., Ruiz, Y., & Alvarado, J. (2020). Heterogeneous Impact of Trade on Economic Growth: New Global Empirical Evidence Using Cointegration of Panel Data. Revista Económica, 8(1), 86–95. Retrieved from https://revistas.unl.edu.ec/index.php/economica/article/view/845
Issue
Vol. 8 No. 1 (2020): Revista Económica vol 8 (Enero-Junio 2020)
Section
RESEARCH ARTICLES
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