Institutional Performance and Trade-Led Growth Hypothesis: Evidence from Pakistan

Abstract

Economic growth is a researchable debate in the context of trade openness relation in testing trade-led growth hypothesis. This study explores the relation of economic growth with trade openness to test the trade-led growth hypothesis by using a recently developed nonlinear ARDL model over the period 1984-2017 in Pakistan. The results reveal that trade openness affects economic growth differently when it decomposes into positive and negative components, and trade openness decrease has a more impact on economic growth in the presence of labor, capital, FDI and institutional performance as control variables. The mixed relationship of openness-growth in the long-run does not completely verify the trade-led growth and shows non-linear impacts of trade openness on economic growth in Pakistan. The study suggests the policies for government officials and policymakers after unearthing the asymmetric association between trade openness and economic growth that would help to make trade policies for Pakistan.

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