Causal Relationship between Government Size and Trade Openness in Bangladesh: An Empirical Analysis

Journal of Business Studies, University of Dhaka, Vol. 1, Issue 1, pp. 105-126

22 Pages Posted: 18 Jun 2018

See all articles by Sakib Amin

Sakib Amin

North South University

Muntasir Murshed

Bangladesh Institute of Development Studies (BIDS); Centre for Policy Dialogue; North South University - Department of Economics, Students

Date Written: 2016

Abstract

Causal association between trade openness and government size has gained interest of researchers and policy makers all around the world. These two crucial macroeconomic variables are of utmost importance when it comes to attainment of economic growth via the channel of globalization. This paper examines the cointegration and causal relationship between trade openness and government size in Bangladesh economy using annual data from 1980 to 2013. We consider a multivariate model and perform the Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests to check if the variables are stationary. Next, we apply the Johansen cointegration method followed by the Granger causality test to check for robustness of the relationship among the variables. Our results reveal that there is a unidirectional causality running from trade openness to government size in Bangladesh which provides support to the compensation hypothesis for Bangladesh economy.

Keywords: trade openness, government size, economic growth, causality, cointegration

JEL Classification: F15, H5, H11

Suggested Citation

Amin, Sakib and Murshed, Muntasir, Causal Relationship between Government Size and Trade Openness in Bangladesh: An Empirical Analysis (2016). Journal of Business Studies, University of Dhaka, Vol. 1, Issue 1, pp. 105-126, Available at SSRN: https://ssrn.com/abstract=3188464

Sakib Amin

North South University ( email )

15 Ariful Haque Chowdhury Rd
Bashundhara Residential Area
Bangladesh, Dhaka 1229 1229
Bangladesh

Muntasir Murshed (Contact Author)

Bangladesh Institute of Development Studies (BIDS) ( email )

E-17, Agargao, Shere Bangla Nagar
Dhaka, 1207
Bangladesh

Centre for Policy Dialogue ( email )

Dhaka
Bangladesh
+8801674873708 (Phone)

North South University - Department of Economics, Students ( email )

Dhaka 1213, Dhaka 1209
Bangladesh
+8801674873708 (Phone)

HOME PAGE: http://https://www.linkedin.com/in/muntasir-murshed-4b6b46151/

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