tionship between openness and economic growth has been extensively examined in the theoretical and empirical literature.
Dollar [9] used real exchange rate distortions to test that the law of one price holds in the long run. The study found a significant negative correlation between real exchange rate distortions and growth, which shows a positive trade-growth link. Harrison [10] investigated the association between openness and economic growth. The study concluded that the correlation between these two variables was strong. Frankel and Romer [11] examined the relationship between trade and growth and also considered geographic characteristics as an important ingredient in trade. The study concluded that trade has a large but moderately positive and significant impact on income of the country. Rodriguez and Rodrik [12] applied the Dollar [9] procedure to an updated version of the same data and found that the same regressions now yielded the opposite signed result. Ekanayake, Vogal and Veeramacheneni [3] checked the causal relationship between output level, inward FDI and exports for a cross-section of both developed and developing countries for period 1960-2001. The study concluded that there was bi-directional causality between export growth and economic growth. Dollar and Kraay [13] investigated the effects of trade on growth and poverty for 137 countries. The study concluded that at individual level and at cross country level the open regimes lead to faster growth and poverty reduction in poor countries. Din [14] examined the export-led growth hypothesis for the five largest economies of the South Asian region and found that long-run causality only existed in Pakistan and Bangladesh while all other countries had short run causality. Hassan and Kamrul [4] investigated the casual relationship between trade openness and economic growth and the structure of international trade for Bangladesh. The study explored that there was long-run uni-directional equilibrium relationship between trade openness and economic growth.
Sarkar [15] investigated the relationship between openness and growth. Study found no positive long-term relationship between openness and growth in majority of LDC's. Klasra [5] examined the long-run relationship between Foreign Direct Investment (FDI), trade openness and economic growth for Pakistan ad Turkey and found that there was bi-directional causality between openness and growth in Pakistan whereas for Turkey there existed bi-directional relationship between FDI and exports
Data and Variables 数据和变量
The analysis is based on annual data for four South Asian countries that are Bangladesh (BNG), India (IND), Pakistan (PAK) and Srilanka (SLK) for the sample period 1972 to 2007. The data is divided into two time spans that are from 1972 to 1985 and 1986 to 2007 to analyze the situation before and after the implementation of SAARC.
The variables used in the study are Gross domestic product (Current US $) as dependent variable. Whereas, the independent variables are the labor force, Gross fixed capital formation (Current US $), and openness. The variable openness is proxied by the ratio of imports plus exports to GDP. The data is taken from the World Development Indicators [6].
Model Specification
The following neoclassical production function is used to find out the effect of trade openness on economic growth
lnY= f{ln (OP, K, L)} (1)
The d
