The Impact of Trade Openness on Economic Growth of South Asian Countries

This research analyzes how trade openness affects the economic growth of South Asian countries from 1980 to 2023. With annual panel data from eight South Asian countries, the study applies sophisticated econometric methods to analyze both short-term and long-term equilibrium relationships. Some of the key approaches include panel unit root tests (Levin-Lin-Chu, Im-Pesaran-Shin), Pedroni and Kao cointegration tests, Johansen Fisher cointegration approach, and Vector Error Correction Model. Trade openness is defined as the level of total trade (exports + imports) %of GDP, while economic growth is represented by GDP per capita. The analysis shows a positive long-run relationship between trade openness and economic growth within the region, confirming that open trade policies increase productivity and growth via specialization, technology transfer, and market expansion opportunities. VECM results suggest there’s unidirectional causality from trade openness towards economic growth in the long run which means liberal trade policies unconditionally boost economy. These conclusions are consistent regardless of different model specifications and control variables used. By emphasizing preserving open trade boundaries constructs strong evidence for policymakers on why they should sustain developed regions with extensive free-trade agreements. Through this research, policymakers appreciate the need for maintaining open trade regimes and developing complementary strategies like improving infrastructure, lowering trade barriers, and enhancing institutional capacity to fully harness the economic advantages of trade.