Trade Openness, Tariffs and Economic Growth: An Empirical Study from Countries of G-20

TL;DR

This empirical study analyzes how trade openness and tariffs impact economic growth among G-20 countries, finding that increased trade openness boosts growth while higher tariffs hinder it, with robust results supporting policy adjustments.

Contribution

It provides new empirical evidence on the positive effect of trade openness and the negative effect of tariffs on economic growth in G-20 countries using lagged regression techniques.

Findings

Trade openness positively correlates with economic growth.

Tariffs negatively impact economic growth in lagged models.

Results are robust across different regression methods.

Abstract

International trade has been in the forefront of economic development and growth debates. Trade openness, its definition, scope, and impacts have also been studied numerously. Tariff has been dubbed as negative influencer of economic growth as per conventional wisdom and most empirical studies. This paper empirically examines relationships among trade openness as trade share to GDP, import tariff rate and economic growth. Panel dataset of 11 G-20 member countries were selected for the study. Results found a positively significant correlation between trade openness and economic growth. Tariff has negatively significant correlation with economic growth in lagged model. OLS and panel data fixed-effects regression were employed to carry out the regression analysis. To deal with endogeneity in trade openness variable, a 1-year lag regression technique was conducted. Results are robust and significant. Policy recommendation suggests country specific trade opening and tariff relaxation.