Impact of Trade Openness on Economic Growth of Pakistan

The objective of this research paper is to analyze the impact of trade openness on economic growth of Pakistan. For this purpose, we collected data from different sources for the period of 1990-2017.Our dependent variable was GDP growth rate while independent variable included Foreign direct investment, Inflation rate, Real effective exchange rate, Trade openness and service sector. ADF test was used to check stationarity while ARDL and ECM models were used to determine long run and short-run relationship between variables. We have found that trade openness and services sector have positive relationship with GDP while inflation rate and FDI have negative relationship with GDP growth rate. Thus, Government should promote trade openness and services sector in order to earn foreign exchange by exporting more goods and services.