Trade Liberalization and Economic Growth Process in India
Keywords:
Trade liberalization, economic growth, co-integrationAbstract
This paper studies the relationship between the trade liberalization and economic growth process in Indiafor the period 1971-2018. The econometric methodology employed was the Cointegration and Granger Causality test. The stationarity properties of the data and the order of integration of the data were tested using both the Augmented Dickey-Fuller (ADF) test and the Phillip-Perron (PP) test. ADF and PP tests are used to check the order of integration of the variables and at this level all the variables were non-stationary, which means that null hypothesis cannot be rejected. However, the stationarity found at their first difference of the series is significant. We apply Johansen co-integration method found 1 cointerating vector, that there exists a long run relationship between international trade openness and growth. Our Granger causality results show that causality follows from GDP to Trade Openness and support trade-led hypothesis. Results also support the idea that country may experience faster per-capita growth with a growing degree of international trade through gains in country productivity associated with availability of finance in the market. Finally, the direction of the causality results followed trade led growth.
References
Bhagwati, J. (1963), 'Some Recent Trends in the Pure Theory of International Trade', in International Trade Theory in a Developing World, eds.,Roy Harrod and Douglas Hague, London: Macmillan and Co. Ltd.pp. 1-30.
Edwards, S. (1998), 'Openness, Productivity and Growth: What do we Really Know?',The Economic Journal, 108:383 98.
Engle, R.F. & Granger, C.W.J. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica55: 251-276.
Granger, C.W.J., 1988.Causality, cointegration, and control.Journal of Economic Dynamics andControl. No. 2-3. pp. 551-559.
King, R.G. and Levine, R., 1993b. Finance, entrepreneurship, and growth: theory and evidence.Journal of Monetary Economics.No. 3. pp. 513-542.
Kumar Sachin 2015, “Finance, Trade and Growth in India: An Empirical Analysis” in Journal of Public Financial Management (NJPFM), Vol. II. 1, 2015
Kumar, Sachin and S.N, Shambhu, 2019, Trade and Foreign Financial Investors (FII) relationship in India, Journal of the Gujarat Society, Vol, 21, Issue 16, pp 914-921.
Panagariya, Arvind (2008), India: The Emerging Giant, Oxford: Oxford University Press.
Smith, Adam (1776), An Inquiry into Nature and Causes of the Wealth of Nations, London: J. M. Dent and Sons Ltd.
Srinivasan, T. N. (1999). Trade orientation, trade liberalization, and economic growth. In G. R Saxonhouse and T. N. Srinivasan (eds), Development, Duality, and the International Economic Regime. Essays in Honor of Gustav Ranis. Ann Arbor, MI: The University of Michigan Press.
World Bank (2006), Global Economic Prospects: Economic Implications of Remittances and Migration, Washington DC: The World Bank.
