The Impact of Aggregate Vulnerability on the Relationship between Trade Openness and Growth: Analysis of Middle Income Developing Countries During the Global Economic Crisis
14 Pages Posted: 17 Nov 2014
Date Written: July 2014
This study investigates whether trade openness has a stabilizing or destabilizing effect on economic growth for 88 middle income countries during the global economic crisis of 2007 to 2008. Vulnerability, the exposure to financial risk caused by a financial crisis and resilience referring to how countries coped with the risk were important contexts that were discussed in the trade openness – growth debate. Moreover, the following research questions were answered: Does trade openness always increase economic growth for trading countries? Does trade openness have destabilizing effects to growth? What were the factors that contribute to growth? What mitigating strategies can be applied to countries that may fall back into poverty in the future due to an economic crisis? Graphical representation and regression analyses were used to assess the relationship between variables using a quantitative longitudinal design. Trade openness had neither a stabilizing nor a destabilizing effect to growth consistent with findings of other studies including (Prasad, Rogoff, Wei & Kose, 2003); (Leelavathi, 2012). Forward- looking factors that show a positive correlation to growth were Good governance, Infrastructural development, low population growth rate and skilled labor. Middle –income countries were urged to develop these forward looking factors in order to be resilient to financial crises. Moreover, countries should shift from being reactive to risk but rather adopt a proactive stance in responding to risk at the household, country and international levels.
Keywords: vulnerability, resilience, risk, financial crisis, trade openness, growth
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