The Nexus Between Openness and Economic Growth: Evidence from a Multivariate Panel Var Model

Abstract

The paper explores the long run equilibrium relationship between openness a nd economic growth in a multivariate panel VAR model for Australia, Ca nada and Israel over the period 1960-2008. Cointegration a nd causality tests, a t individual and group level, are used to know whether trade openness stimulate economic growth (or vice versa) with the inclusion of foreign direct investment. The results confirm the bidirectional causality from openness to economic growth and openness to FOi in Australia a nd Canada. Itals confirms the presence of unidirectional causality from economic growth to FOi in Australia, Canada a nd Israel. However, there is no evidence for short run Granger causality from openness to foreign direct investment in Israel. The dynamic panel data model further confirms the unidirectional causality from economic growth to foreign direct investment a nd bidirectional causality between economic growth a nd openness.