Abstract:
This paper investigates the long-run equilibrium relationship between
economic growth and trade openness in India during the period 1960–2018 using
the asymmetric error-correction model with threshold cointegration. To evaluate
the robustness impact of trade openness on economic growth under different
regimes, we divide the full sample period into two sub-periods, i.e., pre-trade
reforms period 1960–1990, and post-trade reforms period 1991–2018. The study
indeed confirms the evidence of asymmetric cointegration between economic
growth and trade openness in India during the period under evaluation and over the
different sub-periods. The estimated asymmetric error-correction model exhibits
a different speed of adjustment in trade openness in response to positive and
negative economic growth shocks in the short-run. More specifically, during the prereforms period, deviations from the long-run equilibrium due to a relative increase
in economic growth have a lower speed of adjustment in comparison to deviations
caused by a corresponding decrease in economic growth in India.
