Exploring the relationship between trade openness and economic growth in Nepal: Insights from ARDL bound test cointegration analysis

  • Received June 11, 2023;
    Accepted September 20, 2023;
    Published October 2, 2023
  • Author(s)
  • DOI
  • Article Info
    Volume 21 2023, Issue #3, pp. 792-805
  • Cited by
    2 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

The capacity of foreign trade to substantially raise GDP via increased exports, heightened competition, and enhanced efficiency holds the key to bolstering economic growth and prosperity. Recognizing this transformation underscores the importance of shaping Nepal’s economic policies and development strategies for achieving lasting sustainable growth. The objective of this study is to investigate how trade openness has affected Nepal’s economic growth, given its importance in the nation’s overall development. By analyzing the correlation between trade openness and economic expansion, policymakers and researchers can uncover the role of international trade in driving Nepal’s economic advancement. The research methodology involves constructing a regression model using the Autoregressive Distributed Lag bound test, with variables analyzed in growth form and subjected to the Augmented Dickey-Fuller and residual tests. The study’s results indicate a strong positive relationship between trade openness and economic growth in Nepal from 1975 to 2020, with a long-term equilibrium observed. Short-term deviations from equilibrium are quickly corrected at 38.23% annually, highlighting the importance of balanced export and import growth for economic development. The study concludes that trade openness drives Nepal’s economic growth for sustainable development and environmental protection. It offers valuable insights for policymakers and stakeholders to enhance economic growth and overall development of the country.

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    • Figure 1. Development of Nepal’s economic growth, 1975–2020
    • Figure 2. Nepal’s imports and exports, 1975–2020
    • Figure 3. AIC of тop 20 models
    • Figure 4. The ARDL cointegration series
    • Table 1. Descriptive statistics
    • Table 2. Unit root test
    • Table 3. Results of bound testing, critical values, and diagnostic testing
    • Table 4. Results of long-run estimates
    • Table 5. Results of short-run estimates
    • Table 6. Diagnostic stability test
    • Data curation
      Yadav Mani Upadhyaya
    • Formal Analysis
      Yadav Mani Upadhyaya, Khom Raj Kharel
    • Methodology
      Yadav Mani Upadhyaya, Khom Raj Kharel
    • Software
      Yadav Mani Upadhyaya
    • Writing – original draft
      Yadav Mani Upadhyaya, Suman Kharel
    • Writing – review & editing
      Yadav Mani Upadhyaya, Khom Raj Kharel
    • Conceptualization
      Khom Raj Kharel
    • Funding acquisition
      Khom Raj Kharel
    • Investigation
      Khom Raj Kharel, Suman Kharel
    • Supervision
      Khom Raj Kharel
    • Project administration
      Suman Kharel
    • Resources
      Suman Kharel
    • Validation
      Suman Kharel
    • Visualization
      Suman Kharel