An Empirical Analysis of Trade Openness and Economic Growth in South Asian Countries

Abstract

This study analyzes the impact of trade openness on economic growth in selected South Asian countries, namely Afghanistan, Bangladesh, Nepal, India, and Pakistan, over the period 2002-2022. Panel data analysis techniques are utilized to investigate the relationship between trade openness and economic growth. Based on the Hausman test result, the fixed-effects model is determined to be the most appropriate one. The empirical analysis of the fixed-effects model reveals that trade openness has a positive and statistically significant effect on GDP, with a one percent increase in trade openness leading to an average increase of 0.87 percent in GDP. Population growth also exhibits a positive and statistically significant impact on GDP, with a one percent increase in population leading to a 0.58 percent increase in GDP. However, the exchange rate has a positive but statistically insignificant impact on GDP, while inflation has a negative but statistically insignificant impact on GDP in the selected South Asian countries. The findings of this paper highlight the potential growth benefits of increased trade openness in South Asian countries. The study recommends policies aimed at reducing trade barriers, improving trade infrastructure, and promoting regional integration to realize these benefits.