Acta Universitatis Danubius. Œconomica, Vol 15, No 1 (2019)

Abstract

Objectives The objective of the study is to examine the long-run relationship between international trade, gross fixed capital formation, total labor force ad economic growth in the context of Pakistan. Prior Work Although the positive association between international trade and economic growth has been widely investigated in different economic settings, however, the findings in developing countries are still inconclusive. Approach This study analyzed the impact of trade openness on Pakistan’s economic growth during a period of 1980 – 2017.  The total labor force and gross fixed capital formation are served as control variables in this study. The study employed Johansen cointegration and Granger causality test for robust inferences. Implications The results confirm the growth-led trade hypothesis in a given country. The results further show a unidirectional causality running from i) trade openness to gross fixed capital formation and ii) total labor to economic growth. The study proposed a number of policy implications to diffuse trade openness in a given country for long-term sustained growth. Value The study has a novel contribution in the existing literature by including labor and capital in the trade-growth modeling to analyze endogenous production function, which is imperative for country’s long-term growth.