Relationship between international trade and gdp

relationship between international trade and gdp

In open economy, development of foreign trade greatly impacts GDP growth. Adopt modern testing methods like unit root, time-series co-integration analysis and. The treatment of foreign trade statistics in the GDP estimates is tricky, which generate income among our trading partners just as our exports. Relationship between International Trade and Economic Growth: . percentage increase in the ratio of trade to Gross Domestic Product (GDP).

Abstract—As a source of foreign exchange reserves, trade of Trade of goods and services is not only played an important goods and services is played an important role in accelerating role in accelerating economic growth of worldwide but it also economic growth of worldwide; and south —south countries are reduced balance of payments problems, and created not exempted from this general trend.

A Causal Relationship Between Trade And GDP Growth In Togo | Editor IJTEMT -

While a number of few employment opportunities. Imports bring additional competition and variety to domestic markets, To shed some light on this uncertainty, the present article benefiting consumers, and exports enlarge markets for investigates the causal relationship between trade and GDP domestic production, benefiting businesses.

But the benefits of growth in Togo and applies panel data techniques based on international trade for economic growth and development are annual data for the period to In the first step, we will difficult to understate.

In models of endogenous growth, trade examine the degree of integration between GDP growth and trade by employing three panel unit root tests and find that the can impact upon growth by allowing access to the innovative variables are integrated of order one. In the second step, we will products of other countries. Since several periods, there is use Eviews to test at the long-run the correlation and the multiple considerable literature that investigates the link and causation regression relationship MRR between trade and GDP growth.

Trade is the most important source causality between trade and GDP growth. The two variables of foreign exchange, which can be used to ease pressure on the complement each other. This indicates that there is evidence in balance of payments and generate much-needed job support of the trade-led growth hypothesis as well as reverse opportunities.

Abou-Stait states that an import-led causality. The results suggest that in order to achieve high growth strategy or an export-led growth strategy aims at economic growth, policies aimed at trade expansion should be providing producers with incentives to trade their goods promoted.

It is also necessary to devote resources on the non- through various policies. The strategy also aims at increasing trade goods and services production in order to increase trade. Keywords- Trade, South-South trade, GDP growth, Granger Trade can help the country to integrate into the world Causality, Togo economy and help to reduce the impact of external shocks on the domestic economy.

Trade allow domestic production to I. Tsen stated that the experiences of East Asian economies provide good One of the fundamental economic questions is the issue of examples of the importance of the trade sector to economic how a country can achieve economic growth.

Trade-led growth growth and development, and this stress the role of trade as an strategy emphasizes the role of trade in promoting economic engine for economic growth. The trade-led growth hypothesis growth. It states that trade is very important for accelerating states that the growth of trade has an accelerating influence on economic growth. According to Marintrade may have these 66 foreign exchange reserves and can reduce balance of payments stimulating influences because their sectors are seen as key problems, and creates employment opportunities.

Although the sectors to lead economic growth. Being exposed to Page relationship between trade and economic growth has been international markets requires increased efficiency and studied extensively, there is no consensus on whether economic encourages incentives for innovation of products.

Exposure to growth causes trade or whether trade cause economic growth. Docstoc and Slideshare ;Vol. Marin The purpose of this explanatory investigation is to analyze argues that trades are regarded as economies of scale which are the causal relationship between trade and GDP growth in Togo. Increase in trades will add to questions: Does the import-led growth cause GDP growth in Togo?

What effect does trade openness have on GDP?

Hence, the trade-led growth hypothesis postulates that an increase in trades will cause economy-wide gains in Does the export-led growth influence Togolese GDP productivity and economic growth. It must be noted that the effect of trade on technical efficiency is In order to reach the objectives of our research and not without ambiguity in models of imperfect competition and assisting in answering the research problems, the subsequent increasing returns to scale.

The effect of trade on technical hypotheses are therefore formulated: Then, an increase in profitability increases the returns Togolese GDP growth.

When there is H This forces them to reduce output. Marinthe issue of whether output per firm and productivity increases or decreases depends on which of the H A possible outcome is the existence of many growth. In that case, increase Ho3: This may reverse the initial increase in productivity and economic growth caused by trades.

relationship between international trade and gdp

It is clear from this discussion that whether an increase in trade will accelerate economic growth also depends on the market structure of the domestic market. If the domestic market III. With computer programs such as eviews, profits are reduced when there is too much competition. They this study consists on quantitative analysis using secondary can also collude and maintain artificially high costs. The sample will be chose based on the availability of from the collusion could reverse the losses in productivity.

However, the period to In the first step, we will examine the causal relationship between trade and economic growth is degree of integration between GDP growth and Trade by ambiguous. The issue of whether trades accelerate economic employing three panel unit root tests and find that the variables growth can only be determined empirically empirical research are integrated of order one. In the second step, we will use on the causal relationship between trade and economic growth eviews to test at the long-run the correlation and the multiple is not conclusive.

Some studies provide evidence of chosen analytical framework. These studies indicate that trade does not cause economic growth and suggest A. Unit Root Tests that policy makers do not need to promote trade expansion The panel unit root test will be used to examine the degree policies with the aim of high economic growth. They should 67 of integration between trade-led growth and GDP growth unit devote their resources on the production goods and services root tests have been suggested as an alternative test for that are not for trade and this will accelerate the growth of examining the causal relationship between energy consumption Page trades.

Simulation results We make these points in the context of a quantitative model of trade and GDP determination. We use the model in conjunction with sector-level production and bilateral trade data for a diverse group of countries to quantitatively assess how changes in trading costs since the early s have affected GDP volatility. We find that the decline in trade costs since the s has caused sizeable reductions in GDP volatility in two-thirds of the countries in our sample, while it led to modest increases in volatility in the other third.

The range of changes in volatility varies significantly across countries, with Ireland, the Netherlands, Belgium-Luxembourg, and Norway experiencing the largest reductions in volatility, and Greece and Italy experiencing the biggest increases.

The general decline in volatility due to trade is the net result of the two different mechanisms discussed above: Equally interestingly, and against conventional wisdom, higher sectoral specialisation does not always lead to higher volatility. Austria, Belgium-Luxembourg, India, the Netherlands, Norway, South Korea, and Sweden all experienced a decline in volatility due to the trade-induced change in sectoral specialisation.

For three-quarters of the countries, however, the sectoral-specialisation channel contributed to increased volatility. As with the overall net effect of trade on volatility, the relative importance of the two mechanisms we highlight varies across countries, though the effect of the specialisation mechanism is on average smaller than the effect of the diversification mechanism.

Concluding remarks To summarise, our study challenges the standard view that trade increases volatility.

relationship between international trade and gdp

It highlights a new mechanism country diversification whereby trade can lower volatility. It also shows that the standard mechanism of sectoral specialisation — usually deemed to increase volatility — can in certain circumstances lead to lower volatility. The analysis indicates that diversification of country-specific shocks has generally led to lower volatility during the period we analyse, and has been quantitatively more important than the specialisation mechanism.

As the model and quantitative results illustrate, openness to trade does not always cause an unambiguous effect on volatility. The sign and size of the effect varies across countries. This result might partly explain why direct empirical evidence on the effect of openness on volatility has yielded mixed results. Some studies find that trade decreases volatility e. CavalloHaddad et al.