The Impact of Trade Openness on Economic Stability in Asian Countries; Sustainability (15), 11736 (SSCI/Scopus Q1)

Summary

The purpose of this study was to investigate the nexus between trade openness and three aspects of macroeconomic stability, including growth stability, inflation stability, and exchange rate stability, in 20 Asian countries from 2011 to 2019. The empirical analysis was carried out with the help of the autoregressive distributed lag (ADRL) model to examine the impact of trade openness on economic stability. The results showed that trade openness negatively influences macroeconomic stability which is measured through GDP fluctuations in Asian countries both in the short and long term. However, the correlation between trade openness and macroeconomic stability indicated by inflation stability was insignificant. In addition, when macroeconomic stability was measured through exchange rate fluctuations, greater trade openness increased the stability of macroeconomic growth in the short run. 

The more open an economy is, the more the GDP growth rate fluctuates, which reduces macroeconomic stability in Asian countries. Trade openness has several advantages, such as increasing import and export opportunities and creating employment opportunities, which, in turn, significantly enhance economic growth. However, it is also notable that the degree of economic growth fluctuates at a larger rate than that of trade openness. This result proposed that Asian countries should take advantage of increased trade openness, exports, and output to meet the demand for exported goods and services and develop the economy. However, at the same time, they should focus on technological innovation to increase the long-term productivity and output without being dependent on exports. This strategy should allow them to achieve sustainable economic development in the long term.

Link: Sustainability | Free Full-Text | The Impact of Trade Openness on Economic Stability in Asian Countries (mdpi.com)

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