Trade Openness, Growth and Development : Evidence from Heterogeneous Panel Cointegration Analysis for Middle-Income Countries

This paper investigates the impact of trade openness on economic growth and development for a sample of 85 middle-income countries over the period 1970-2009. The paper employs non-stationary heterogeneous panel cointegration techniques that take into consideration the impact of cross-section dependence. The analysis reveals three important findings. Firstly, that trade openness has been one of the main drivers of the level of development, but not of economic growth in middle income countries. Secondly, that trade openness is both a cause and a consequence of the level of development in middle-income countries. Thirdly, that neglecting the impact of cross-section dependence overestimates the coefficient linked to the long-run relationship between trade openness and development