ASSESSING THE IMPACT OF TRADE OPENNESS ON DEVELOPMENT: AN ECONOMETRIC AND OPTIMIZATION FRAMEWORK FOR INTERNATIONAL ECONOMICS

Abstract

Currently, trade openness is one of several drivers of economic development globally. Most liberalized trade policies connect national economies to global markets. National policies like this create opportunities for economic growth, new technology, jobs, and decrease poverty. To what degree trade openness leads to development is open for discussion to varying degrees among economists and policymakers. Open trade policies mean better investment, better allocation of scarce resources, and better diffusion of innovations. Critics argue this leads to income inequality, loss of industries, and exposure to shocks. This research aims to answer the question of what effect does trade openness have on economic development. An econometric and optimization design is applied to this question. This study employs panel data for a select number of developed and developing countries in a twenty-year study. The indicators for economic development in this study were GDP growth per capita, the human development index, and employment. Trade openness, in this case, is the ratio of total trade to GDP. The development outcomes are estimated in the study using fixed and random effects regression models. Risk and reward were considered as an optimization design to determine the trade openness with the best developmental benefits. The findings indicate that trade openness and economic development have a positive, statistically significant correlation.

Keywords: Trade Openness, Economic Development, Econometric Analysis, Optimization Framework, International Economics.