Trade Openness and Economic Growth: A Panel Cointegration and Causality Analysis for the Newest EU Countries

Nikolaos Dritsakis
Pavlos Stamatiou
JEL codes: 
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models, E31 - Price Level; Inflation; Deflation, E50 - General.
This paper explores the relationship between trade openness and economic growth using data for the thirteen newest European Union members. The study covers the period of 1995–2013. We have applied panel cointegration and causality approaches to examine the long-run and the causal relationship between the variables. Empirical results confirm the presence of a cointegrating vector between trade openness and economic growth, in this group of the thirteen countries. An error correction model (ECM), followed by the two steps of Engle and Granger was used to capture the short and long-run dynamics. The impact of economic growth and trade openness is found to be positive. Finally, the panel Granger causality analysis reveals a unidirectional causal relationship running from trade openness to economic growth, both in the short and in the long-run.
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