The Role of Institutional Quality in Trade-Growth Nexus: The Case of Emerging Economies

Abstract

This study aims at investigating the relationship between trade openness and economic growth after incorporating the role of institutions. Generalized method of moments (GMM) system technique is applied by using data of 17 major emerging market economies (EMEs) for the period 1995-2018. The empirical evidence suggests that trade liberalization affects economic growth positively and significantly while institutions play a supportive role in this regard. The interaction terms are also generated to test the impact of the institutional environment on the trade-growth relationship. The empirical results are robust to various specifications, confirming the positive role of institutions in trade- growth nexus. The countries should develop a conducive institutional and political environment to ensure the beneficial growth effects of trade liberalization policy.