Trade liberalization and Economic Growth on Indian Economy Using ARDL Model

Abstract

There has been a discussion among Economists on the impact of trade liberalization on economic growth of the country , most especially to developing nations. While some see a positive impact of trade liberalization on economic growth, others found it to be otherwise. India adopted trade liberalization policy in the year 1991; it is in light of this that the study investigates the impact trade liberalization has on economic growth of India. The study employed the Augmented Dickey Fuller (ADF) unit root test shows all variables to be integrated of order one, shows the presence of one cointegrating equation among the variables i.e. the variables were found to have long run relationship. Long run estimates shows the presence of a positive and significant relationship between Openness and GDP, FDI was also found to have a positive relationship on GDP while Exchange rate exerted a negative impact on GDP. The response of GDP to a unit standard deviation shock in Openness and FDI to be positive, hence indicating a positive impact of the variables on GDP, while the response of GDP to shock in Exchange rate was negative all through the period, indicating a negative impact of exchange rate on GDP.