An analysis of the interrelationship among trade openness, institutional quality and economic growth: Empirical evidence from Pakistan

Abstract

Contemporary development economists are focusing more on the influence of trade openness and institutional quality on economic development in developing nations. Effective institutions are thought to be essential for increasing economic progress, especially in developing countries. Trade liberalization has been increasing since the mid-1980s. The term "trade openness" refers to the removal or reduction of trade obstacles between countries and the promotion of free trade. Twenty years ago, a consensus emerged that trade openness strongly promoted economic growth. Developing economies including Pakistan are rapidly moving to free trade due to its numerous advantages. From 1984 to 2018, this research sought to uncover the relationships between institutional quality, trade openness, and Pakistan's economic growth. To achieve the goals of this research, state-of-the-art econometric methodologies were applied to various findings. Descriptive statistics are used to determine the data's center of tendency and skewness. To check the stationary problem of all series, ADF and Philips-Perron unit root tests are used. Both tests recommended using the ARDL bounds test. Two indices were created for this study: one to gauge the institutional quality and the other to measure trade openness. The main factors in Pakistan's economic growth are trade openness and institutional quality, according to empirical findings. According to this empirical research, trade liberalization will only be successful if policymakers seek to improve the quality of Pakistan's political and economic institutions