Trade Openness and Economic Growth: A Panel Causality Test
Fatma Zeren, Ayse Ari

Abstract
The relationship between openness and economic growth is a controversial topic in economics literature. This paper applies the most recently developed Granger non-causality test in heterogeneous panels to reinvestigate the causality relationship between trade openness and economic growth for the G7 countries between 1970 and 2011. The empirical results show there is a bidirectional causality relationship. Thus, as is advocated by the theories of endogenous growth, as openness increases, growth increases in the G7 countries and, subsequently, the increase in growth increases openness.

Full Text: PDF