The Impact of International Economic Integration on Economic Development: A Quantitative Study

This article aims to explore the effects of international economic integration on economic development by employing panel tests on crosscountry data over the time frame 2000-2020. In the study, FE, RE, and IV regression models are used in STATA to find out the impact of trade openness, FDI, Financial integration, and RTAs on economic growth, controlling for institutional quality, inflation, and human capital. This article argues that trade openness, FDI, and financial integration have a positive effect on the economic growth of all the economies, and mostly those with good governance and a stable macroeconomic environment. The Housman test supports the Fixed Effects model, thereby emphasizing the influence of country-level institutional characteristics. Additional tests with quantile regression and heteroscedasticity-corrected estimations indeed suggest that the gains from integration are even higher in developed countries. However, free movement of funds, which is financial integration if not well monitored, has been found to cause undesirable fluctuations in the economy, as observed in the past financial crises. Therefore, this research concludes that the quality of institutions plays a significant role in determining the level of economic integration, and hence, there is a need for governments to act upon enhancing the quality of institutions as well as enhancing the macroeconomic environment. The findings of this paper thus offer an empirical backing for the notion of a positive relationship between economic integration and long-run economic growth and development for developing nations, and at the same time, the adverse effect of financial liberalization without accounting for suitable regulations.