Causality Relationship Between Trade Openness and Economic Growth: Emerging Market Economies

Although the concept of globalization does not have a broad meaning, it can also be used to mean the trade openness of the country s economy. The liberalization process that started in the 1980s in the world economy is closely related to the recent political developments of the Soviet Bloc. Emerging countries, where integration of world trade is very important, have a special position in terms of trade liberalization and integration into the global system. One of the problems that the globalized world economy has to come from its superior in the integration of the countries in the different structure to the world economy is the full understanding of the effects of the trade openness on economic growth. In this context, the mutual or unidirectional linkage between the two variables is important for the understanding of the country s economy. This study aims to investigate the relationship between trade openness and economic growth in emerging economies with data from the 1992-2015 period of the emerging economies. For this aim, the linkage between trade openness and per capita gross domestic product has been tested with various econometric tests. In the study, first-generation panel unit root tests were chosen for the stability of the series. On the other hand, Emirmahmutoğlu-Köse and Kónya panel causality tests were chosen for the understanding of the causality relation between the series, taking into account the Dumitrescu-Hurlin panel causality test and the cross-section dependency. According to the unit root test results show that the trade openness and the economic growth variables are at the first level. These events show that the series is affected by economic shocks however they are rebalancing through various political or economic instruments. On the other hand, among the results of causality tests, Dumitrescu-Hurlin shows that per capita GDP leads to trade openness throughout the panel causality test in panel common. In addition, given the economic interactions of some of the countries in the globalization process, the individual causality test results of the Emirmahmutoğlu-Köse and Kónya Panel Causality Tests show that in China and Romania there is a unidirectional causality between per capita GDP and trade openness. The results of the same test show that in the Philippines, the per capita GDP is the reason for the trade openness. According to these results, China, Romania, and the Philippines are at the lead of the causality linkage between the two variables in contrast with other countries.