IMPACT OF TRADE OPENNESS ON MACROECONOMIC VARIABLES AND GDP GROWTH IN PAKISTAN AND INDIA

This paper examines the effects of openness of trade on macroeconomic variables and GDP growth in Pakistan and India. For this purpose, Annual data ranging from 1972 to 2014 taken from World Development Indicators (WDI) including GDP, trade openness, employment rate, exchange rate, inflation and FDI. Johansen's co-integration test has been used to test the log run association among considered variables. Augmented Dicky Fuller (ADF) is also used to check the data stationarity. Empirical results show that there exist a long run association among the variables. By employing simple ordinary least square test, we come to know that trade openness has significant impact on GDP in both Pakistan and India. Exchange rate also have significant impact on GDP in both Pakistan and India. Inflation has negative impact on GDP in case of Pakistan. Whereas, FDI has negative impact on GDP in case of India. In conclusion, we can say that policy makers of both countries must be very keen observer on the policies of trade for the betterment of both countries.