Abstract
One of the important elements related to the variation in the efficiency of investment and productivity is the role of openness. The relationships between openness and allocation efficiency as well as openness and productivity are linked with the adverse selection phenomenon in the developing countries and it has resulted in inefficient resource allocation and low TFP. Therefore, this paper is intended to investigate the impact of openness on allocation efficiency (Incremental Capital-Output Ratio (ICOR)) and productivity growth (TFP growth). Applying the Unrestricted Error Correction Model (UECM), it is found that openness has led to improvement in allocation efficiency, except for Indonesia. Openness has also contributed to technological upgrading for most of the countries in the study.
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