Does Trade Openness Promote Long-run Growth in Egypt? ARDL, Bounds Testing Approach for Co-integration and Impulse Response (GIRF) Analysis for Causality

Abstract

This paper aims to investigate the empirical relationship between trade openness and economic growth in Egypt for the time period of 1970-2012. Trade openness is a multi-dimensional concept and hence three measures imports, exports and trade volumes (exports + imports) have been used as proxies for openness. We use the augmented production function following the framework of Mankiw et al. (1992) by including indicators of trade openness in our models as endogenous variables. We apply the ARDL bounds as well as Johansen Maximum Likelihood approaches to test for a long run relationship between trade openness and economic growth. We use the VECM Granger causality and the Generalized Impulse Responses Function (GIRF) to test the direction of the causality between trade openness and economic growth. The results suggest the co-integration between the series and the empirical evidence in support of a bi-directional causal relationship between imports as well as trade and GDP growth for Egypt, but a unidirectional causality for exports.