Revising the Impact of Trade Openness on Economic Growth

Abstract

The impact of trade openness on economic growth remained debateable despite the increasing trend of globalisation and liberalisation. This is attributable to the low capacity of the developing countries that mainly produce and export intermediate goods. Thus, developing countries might not compatible in free trade and result in a decline in economic growth. Apart from the capacity issue, previous research findings reveal that the multinational corporations (MNCs) mainly exploit the resources in the home countries without stimulating or sustaining their economic growth. Therefore, this study’s objective is to analyse the impact of trade openness on the economic growth in selected developing countries, i.e. Malaysia and Thailand using time series data. The results show that trade openness has positive impact on economic growth in both countries which support the trade-led growth theory. Besides, the results note that financial developing plays an influential role in economic growth for the countries under study