The Impact of Trade on the Economic Growth of The Gambia

TABLE OF CONTENTS

ABSTRACT

1.0. INTRODUCTION
1.1 Purpose of Research / Significance
1.2 Objectives of the study
1.3 Research questions
1.4 Limitation

2. LITERATURE REVIEW
2.1 Theoretical Literature Review
2.2 Empirical Literature Review

3. METHODOLOGY
3.1 Econometric Framework and Model Specification

4.ECONOMETRCIS ANALYSIS OF RESULTS

5. CONCLUSION AND RECOMMENDATION

REFERENCES

APPENDIX

ABSTRACT

The study examined the general impact of trade on economic growth in the Gambia from 1965 to 2016. Accordingly; we have done three analyses in order to get appropriate answers to our research problems. We performed some econometric methods such as Augmented Dickey Fuller test, Johansen co-integration test and vector error correction model. The findings of the stationery test show the present of unit root. The OLS regression results show that import, interest rate, real effective exchange rate, and inflation are positively correlated with GDP, while export is negatively correlated with GDP. the result shows that GDP lag, import, and real effective exchange rate cannot influence economic growth whiles export, interest rate, and inflation can highly influence economic growth of the Gambia, even though export negatively influence economic of the Gambia. This positive relationship suggests that the economy of the Gambia can potentially be expanded by means of trade whiles the negative relationship means that it has no bearing on the economic growth of the Gambia, From the overall analysis, it is revealed that the variables included in the model have a 50% influence on economic growth while the remaining 50% constitute variables not included in the model. This implies that (a) Trade has an impact on economic growth of the Gambia (b) Trade is a robust determinant of economic growth in the Gambia even though that there is still room for research on the impact of trade on economic growth in the Gambia. (c) The effect of trade and extent of the market on growth is a recurring issue in the world of economics. This study recommends that if the Gambia economic growth is to be increased, then policymakers should came up with strategies that encourage more imports, reduce interest rate, and maintain a stable exchange rate and inflation rate in the Gambia. The negative sign of export means policymakers should pay less attention to export.

Key Words: Economic Growth, Trade, Vector error correction model, ADF Test, Johansen co-integration test,

The Gambia

1.0. INTRODUCTION

The Gambia is a free market and import-oriented economy and is currently one of the least performing economies in Africa with Real GDP growth stagnated at 0.9% in 2014, and while government estimates projected a rebound in 2015 to 4.7%, underlying economic data, such as tourist arrivals, trade data, private credit growth, and agricultural production, indicate the outcome was much more subdued, if not a contraction. A widening fiscal deficit, ad-hoc monetary policy shifts, and Central Bank financing of the deficit has caused the macro to continue to weaken in 2016, and is expected to dampen growth and private investment.

Between 2013 and 2016, real per capita GDP is estimated to have fallen by 20%, suggesting an increase in poverty levels. A household survey from 2015 shed further light of the effects of the recent growth volatility on poverty reduction. However, the concurrent surge in migration in 2014 and 2015 suggests increased macroeconomic fragility aside from pull factors, and the official initial figures may not fully capture the extent of the negative impacts on the real economy.

Exchange rate policies that sharply overvalued the Gambian Dalasi have also contributed to financial strains and balance of payments imbalances. Central Bank official foreign reserves have declined significantly, with the periodic imposition of currency controls since 2013 and overvaluation against the US dollar as high as 30% over pre-peg, market-determined rates. The lifting of currency controls since January 2016 should facilitate a rebuilding of reserves over time; however, there are other administrative current controls in place that could pose ongoing challenges, including shipment controls on US dollars, Pound-Sterling and Euros.

There has been a considerable interest among policymakers and researchers in the Gambia in understanding the impact of trade on economic growth of the Gambia. However, literature, in particular, of the empirical econometric analysis on economic growth varies in terms of data sets, econometric techniques, and often produces conflicting results.

In this world of economics, the effect of trade and level of the market on growth is a recurring issue. Hanif & Gokal (2004) demonstrated that just like many countries, whether industrialized or developing, one of the most fundamental objectives of macroeconomic policies in the Gambia is to sustain high economic growth.

In this study the attention would be to develop an investigation on the impact of trade on economic growth in the Gambia using the regression method. Economic growth means an increase in the average rate of output produced per person usually measured on a per annum basis.

The relationship between trade and growth is envisaged through an export let strategy, following the theory that sustained trade is the main engine of economic growth. The Gambia is an open economy with international transactions constituting a significant proportion of her aggregate output. To a large extent, the Gambia’s economic development depends on the prospects of her export trade with other nations. Trade provides both foreign exchange earnings and market stimulus for accelerated economic growth.

1.1 Purpose of Research / Significance

The Gambia has no important mineral or other natural resources, and has a limited agricultural base. About 70 to 80 percent of the population depends on crops and livestock for its livelihood (2010 budget). Small-scale manufacturing activity features the processing of peanuts, fish, and animal hides and has not improved in its exports since independence in 1965 still experience unfavorable BOP (Balance of Payment) and increasing national debts. The purpose of this study is to investigate the level of impact trade cause on the general economic growth of the Gambia. The study would provide statistical and analytical evidence of the impact of trade on economic growth in the Gambia since its independence through regression methods. Econometrics analysis gives this clear answer. Statistics cannot alone give a clear answer.

An economist James Heckman provides a good answer for what distinguishes econometrics from statistics. He said that econometrics focuses on establishing causation, while statistics is content with correlation. So to answer the problem econometrics analysis is the best way.

1.2 Objectives of the study

The objective of this study is to evaluate the general impact of the Trade on the Gambian economy, to examine whether trade is robust determinants of economic growth in the Gambia, and also the extent of the linkages between exports, imports, interest rates, exchange rates and inflation, taking the Gambia industry as a case study. The summary of the main objectives of this study are:

- To examine the impact of trade on the Gambian economy.
- To examine the workings of trade on the economic growth of the Gambia.
- To recommend to the relevant authorities on the best policies regarding trade.

1.3 Research questions

- Is the effect of trade and extent of the market on growth a recurring issue in the world of economics?
- What has been the impact on trade on the general economic growth of the Gambia?
- Is there any relationship between trade and economic growth as evidenced by the Gambian situation?

1.4 Limitation

There is some limitation found on the data collected hence data of Gambia exchange rate is not available so real effective exchange rate was used as a proxy and on this data there is insufficiency of data from 1965 to 1979. The empirical studies review in the Gambia is also few. Time management was another source of challenges in process of carrying this study, my supervisor traveled couple with other family problem caused some delay in process so I did changed supervisor and could have completed early than expected.

2. LITERATURE REVIEW

2.1 Theoretical Literature Review

Since this study is about the impact of trade on economic growth of the Gambia, it makes sense to review some of the major trade theories in the existing literature as well. I will first like to emphasis that, no single study can completely review all the trade theories in the literature. Therefore, this study attempts to review some of the important trade theories found in the literature in a selective manner.

To begin with a discussion of the mercantilists’ views on trade. First, the mercantilists believed that the strength, power, capabilities, wealth, as well as the capacity of a nation depend on the amount of precious metals in its possession. In this regards, silver and gold were considered to be more valuable in relation to any other precious metal. As a result of this kind of orientation, the mercantilists advocated for a process that is popularly referred to in the literature as bullionism (Heckscher 1935). In other words, countries should concentrate on acquiring precious metals as much as possible, especially silver and gold in the process of participating in international trade because they assumed that wealth of the world are fixed. Secondly, the mercantilists advocated that countries that have goods for exports should always demand for their payments in terms of silver and gold. In addition, the mercantilists encouraged exports and discouraged the importation of goods simultaneously, since exports are good for the national economy, while imports are harmful to a country’s economy (Smith, 1776).

The mercantilists viewed trade as a zero-sum game- means there is only one winner. In other words, only one particular country gains from participating in trade at a time in relation to its trading partner (Irwin, 1996). Although the mercantilist period is now history, a number of policies meant for the promotion of trade, especially international trade in modern times have some of the mercantilists economic ideas entrenched in them. Certainly, the impositions of various restrictions in trade in form of tariffs, quotas amongst others on the part of modern economies have the nuance of the mercantilists’ economic philosophy (Chipman, 1965).

According to The Classical economic theories by Adam Smith and David Ricardo recognized the important role that trade plays in economic growth, as it encourages specialization which offers considerable economic benefits (Smith 1776 and Ricardo, 1817).

Adam Smith (1776) absolute advantage theory explains that countries should specialize in the production of those goods in which they have an absolute advantage. In turn, they should export such goods to their trading partner and should import those goods in which their trading partners have an absolute advantage. in another words, the theory of absolute advantage states that each country should export those goods it produce more efficiently and in turn import those goods that it produce less efficiently (Allen,1965).

Ricardo (1817) law of comparative advantage improved upon the earlier law of absolute advantage theory. Unlike the absolute advantage theory, the Ricardian framework advocates that countries should fully specialize in the production of goods, where they had a greater comparative advantage instead of concentrating on the production of a wide range of goods. If this occurs, trade will easily take place between one country and another. In addition, the Ricardian model does not directly consider factor endowments, such as the relative amounts of labor and capital within a country. This represents one of the most penetrating laws of economics, with far-reaching practical applications (Salvatore, 2007)

In contrast to Ricardian model, the Heckscher-Ohlin (HO) model (Heckscher 1919 and Ohlin 1924) assumed that there are two nations, two goods and two factors of production, namely labor and capital. Both nations use identical technologies in the production process. The concept of constant returns to scale in the production process is applicable to both nations. The tastes in both countries are similar. Factor movement within a country is unrestricted but not across international frontiers. There are no barriers such as transportation costs and tariffs that can either obstruct the free flow of international trade. In addition, all resources are fully employed in both nations.

The model yields four sharp predictions: Firstly, The HO theorem–the capital-abundant country exports the capital-intensive good. That is both countries gain from trade. Secondly, the Stolper-Samuelson Theorem - there is the absence of a complete specialization scenario due to diminishing marginal rates of transformation. Thirdly, Factor Price Equalization Theorem which states that given the same technology, the factor prices will be the same between the two countries. Fourthly, the Rybczynski Theorem state that within countries, the economic return to owners of the abundant resources will rise in relation to the owners of scarce resources. In addition, trade is expected to stimulate economic growth.

The gravity model postulates that the bilateral trade between two countries is expected to be proportional, depending on the size of that particular country’s GDP, as well as the geographical distance existing between them (Wang, et al., 2010). Therefore, it is possible to construct a gravity equation that can be used to predict the volume of trade between two countries.

Biswas (2002) stated that the variables that are needed so as to construct such an equation are information on the national income for country X and country Y, and information concerning the geographical distance between country X and country Y, as well as an estimation of the transport costs, tariffs, common currencies between both countries. It is important to note that the gravity trade model works more efficiently for countries that do experience large volume of intra-industry trade with each other, as well as having similar factor endowments rather than a contrasting situation (Dean, et al., 2009).

Graham and Krugman(1995) states that the gravity model helps countries to appreciate the factors influencing the volume of trade. In addition, it explains in some ways the causes of trade. Besides, it plays a useful role in focusing on the volume of trade and in attributing such a volume to specific and important economic variables.

Generally, trade theories play a vital role in the global world. Various theories have attempted to explain why trade occurs between countries. The more traditional and older theories emphasizes the international exchange of one set of goods for another due to comparative advantage,, much of International trade involves the two way exchange of goods within industries between countries. These theories including the Heckscher-Ohlin have provided the foundation for newer trade theories of increasing returns and imperfect competition.

2.2 Empirical Literature Review

I will first start with some empirical studies in the Gambia. To begin with Momodou Taal (2007) studied the impact of Trade liberalization on economic growth in the Gambia from 1970 to 2004. For this study the neo-classical growth model is applied, using time series data from 1970 to 2004.The Error Correction Model (ECM) is intended to capture both the short-run and long run impact of the variables in the model. The results of the estimation show that all the variables are significant except the terms of trade (TOT) which came out with a different coefficient sign, implying that the terms of trade in the Gambia are not favorable as imports outweighs exports.

If the Gambia is to benefit more from trade liberalization, it will have to look into its macroeconomic policies and create an enabling environment for investment in terms of property rights, adequate access to credit, stable power supply, good roads, telecommunications and security. The government should control its fiscal policy as it is the major obstacle to private investment.

Alieu Gibba and Jozsef Molnar studied export as determinant of economic growth in the Gambia. Export growth is important because of its effects on national & internal trade and economic stability. Moreover, the rate of economic growth in The Gambia and the distribution of income and wealth are closely related to export growth. Growth of the economy is directly related to exports. At national level, the export activity provided a large amount of income for the economy. On the other hand, the instability in exports can seriously affect the process of economic growth and development. This paper examines the causal relationship between The Gambia exports and economic growth (GDP) using the Error Correction Model (ECM) for the time series data period 1980-2010. Econometric models were estimated to test for time series properties: unit root (ADF) and Co-Integration (Johansen’s procedure). With these (time series) data, a short and long run relationship is established between GDP and exports using an Error Correction Model (ECM).

According to the empirical results, the R-squared is found to be 63.49%. This statistically implies that The Gambia’s economic growth (GDP) can be explained by its total export at a rate of 63.49%, showing that total export growth is a good determinant of economic growth. The main conclusion that was drawn from the ECM is the negative relationship between GDP and exports from 2003 to 2010. The reasons for this negative relationship were domestic and international, social and economic changes, which includes the fiscal deficit trends. Thus, it is a signal that more efforts are needed for the revitalization of the export industry policy target.

Empirical studies outside the Gambia. One of the earliest empirical studies that is widely acknowledged and highly celebrated in the literature concerning the relationship between trade and economic growth is that of Emery (1967) that investigated the relationship between exports and economic growth for 48 developed, and 48 developing countries. He made use of time series macroeconomic annual data covering the period 1953 to 1963. He relied upon a simple regression model in pursuing his investigation. In addition, he treated gross national product as the dependent variable and total exports as the independent variable. The results indicate that there is a strong positive relationship between exports growth and economic growth. Further, his results suggested that, in order to increase economic performance, countries should emphasis on export-oriented policies as against import substitution policy.

Mogoe, S. and Mongale, I.P (2014) examined the impact of foreign trade on economic growth in South Africa. The findings of this study will determine the effects of international trade on economic growth to the policymakers. The study follows the co-integrated vector auto regression approach which contains the following steps: Augmented Dickey-Fuller and Phillips-Perron to test for stationary. The model is also taken through the Johansen co-integration test and Vector error correction model. The findings of the stationary tests indicate that all the variables have a unit root problem. The co-integration model emphasizes the long run equilibrium relationship between dependent and independent variables.

The empirical results of the Johansen co-integration test reject the null hypothesis of no co-integration and suggest the presence of a long term economic relationship among all the variables. Empirical investigation reveals that inflation rate, export and exchange rates are positively related to GDP whilst import is negatively related to GDP. The conclusion drawn from this work is that there is a correlation amongst GDP and its independent variables. This study recommends that the policymakers should improve and strengthen the competiveness of export sector with the aim of striving for a balance with the import sector.

Maizels (1968) tested the relationship between the rate of change in exports and the rate of change in the GDP for nine developing countries for the period between 1951 and 1962. He observed a significant relationship between the export and GDP growth rates. However, the study did not shed light on the issue of causality. Also the period covered by this study is just over ten years and is short and so may be the result could have been different if he should have cover more years.

Pam Zahonogo(2017) studied investigates how trade openness affects economic growth in developing countries, with focus on Sub Sahara Africa(SSA).He used a dynamic growth model with data from 42 SSA Countries covering 1980 to 2012. He employs the pooled Mean Group estimations technique, which is appropriate for drawing conclusion from dynamic hetrogeneneous panels by considering long run equilibrium relations.

The empirical evidence indicates that a trade threshold exists below which greater trade openness has beneficial effects on economic growth and above which the effect on growth declines. The evidence also indicates an inverted U-curve (Laffer Curve of Trade response, robust to changes in trade openness measures and to alternative model specifications, suggesting the non-fragility of the linkages between economic growth and trade openness for Sub -Saharan Countries. Their findings are promising and support the view that the relation between trade openness and economic growth is not linear for SSA.

H.M.S.P. Herath (2010) studied the impact of trade liberalization on economic growth of Sri Lanka. The research problem is expressed as “To what extent does trade liberalization or openness of the economy influence on economic growth of Sri Lanka?” The primary objective of the study is to investigate the causal relationships between the trade liberalization and economic growth of Sri Lanka. The study is mainly based on secondary data. In identifying the impacts of trade liberalization on growth and trade balance, data were collected on a specific time interval before and after the trade liberalization. The time period selected is from 1960 to 2007. To identify the impacts of trade liberalization, total time period is divided into two sub periods of before trade liberalization i.e. (1960 to 1976) and after trade liberalization i.e. (1977 to 2007).

Since the study is based on secondary data, basically it uses data published in annual reports of Central Bank of Sri Lanka. The variables identified in the main objective of the study are tested hypothetically, and quantitative analytical methods are applied to make accurate and reliable conclusions. Therefore, graphical presentations and regression analysis are used to assess the degree of relationships among variables concerned. Further to test the structural changes of the country, the Chow test is applied. Findings of the study confirm a significant positive relationship between trade liberalization and economic growth of Sri Lanka. The result of Chow test proves a clear change of economic growth before and after trade liberalization of the country.

Matthias Busse, and Jens Königer argues that the impact of trade on economic growth depends on the specification of trade. That is whether trade openness or protective trade. While trade integration is often regarded as a principal determinant of economic growth, the empirical evidence for a causal linkage between trade and growth is ambiguous. This paper argues that the effect of trade in dynamic panel estimations depends crucially on the specification of trade. Both from a theoretical as well as an empirical point of view one specification is preferred: the volume of exports and imports as a share of lagged total GDP. For this trade measure, a positive and highly significant impact on economic growth can be found.

Cyril Ayetuoma Ogbokor, and Meyer Daniel Meyer (2016) studied the possibility of a long-run relationship between foreign trade and economic growth in Namibia. Exports, foreign direct investment and exchange rates were used as potential predictors of economic growth, while real gross domestic product served as a proxy to economic growth. Quarterly time-series macro-economic secondary data sets were utilized from the period 1990 to 2013. Firstly, the study found positive relationships amongst the four variables used in the study. Indeed, this positive relationship suggests that the economy of Namibia can potentially be expanded by means of foreign trade. The result is also in line with broad economic theory. Secondly, the study found that economic growth responds stronger to changes in exports and foreign direct investment compared to changes in exchange rates. Thirdly, co-integrating relationships were found amongst the variables used in the study, implying a long-run relationship amongst these variables. Lastly, the study found that exports indeed Granger-cause economic growth. The implications of the research are that the results of the research could be used to improve economic policy for Namibia and other developing countries.

Olabanji Olukayode Ewetan and Henry Okodua, deals with the issue of causal links between exports and economic growth. They examines the applicability of the Export-Led Growth hypothesis for Nigeria using annual secondary time series data from 1970-2010. The estimation results obtained from the co-integration test and Granger Causality test within the framework of a VAR model did not support the Export-Led Growth hypothesis for Nigeria. Their study concludes that government must diversify the product base of the economy, promote non-oil exports, and build up an efficient service infrastructure to drive private domestic and foreign investment.

Khorshed Chowdhury(1992) have tried to resolve the growth-trade nexus by studying twelve countries of South Asia, Far-East and Australia. Utilizing the Granger concept of causality, and using the Finite Prediction Error (FPE) and Hockings Sp criterion of model selection he was able to find substantial evidence in favour of the hypothesis that trade causes economic growth. This result was achieved by using a different data source and model selection criteria from those mentioned in the above studies.

Fitzová, H., Žídek, L. (2015), examines the relationship between trade and economic growth in the Czech and Slovak Republics. The situation after the Velvet revolution in 1989 is discussed at first. The change of the structure of the trade and the orientation of the trade in both republics are explained and illustrated on available data. The empirical part proved an analysis of the relationship between trade and GDP growth, using econometric analysis. Theory of co integration, the vector error correction model and Granger causalities are employed. A long-term equilibrium among the investigated variables is identified in both countries. The empirical findings also indicate important role of exports in the economic growth in both republics. We conclude that economic growth in both of the countries can be identified as export-led

Frankel et al., (1996) tested the relationship between trade and growth for selected East Asian countries by applying the gravity model. The study employed OLS methods and found a strong effect of openness on growth. Therefore, the study concludes that openness index has contributed enormously to the East Asian growth. Further contributing to the empirical literature, Frankel and Romer (1999) evaluated the impact of trade on growth using OLS procedures. The researchers found a positive correlation between trade and growth for a number of countries that were investigated. In addition, the study found that, controlling for international trade countries that are larger have more opportunities for trade within their borders.

Ogbokor (2005) also tested whether the foreign sector in Zimbabwe has any connection with the economic performance of that country. He made use of time series data covering 1991 to 2003. The study found that the export sector in Zimbabwe was weakly connected to the rest of its economy. Both export and import variables were found to be poor predictors of growth in respect of Zimbabwe. This result is not surprising, since Zimbabwe has been under various forms of economic and political sanctions for more than a decade, due mainly to the issue of land reform by its ruling government.

Manni et al., (2012) established the connection between trade and the economy of Bangladesh for the period running from 1980 to 2010 using an OLS model. This study analyzed the achievements of the economy in terms of important variables such as growth, inflation, export and import after the implementation of trade liberalization policies in Bangladesh. The analysis indicates that GDP growth increased consequent to liberalization. Trade liberalization does not seem to have affected inflation in the economy. The analysis also suggests that greater openness has had a favorable effect on economic development. Both real exports and imports have increased with greater openness. The liberalization policy certainly improves exports of the country, which eventually led to higher economic growth during the period under consideration. The findings of this study can be an interesting example of a trade liberalization policy study in developing countries. It would be useful for other developing countries that are currently relying upon liberalization policies to also conduct similar studies in order to determine the effectiveness of this policy on their economies

Love and Chandra (2004) using co integration procedures assessed the connection between for three countries, namely, India, Pakistan and Sri Lanka with the assistance of macroeconomic time series annual data sets for three different periods. That is, 1950 to 1998, 1970 to 2000 and 1965 to 1997. The study found that export has a positive impact on economic growth in the case of India and Pakistan. Further, the study found a bi-directional causality between exports and economic growth in the case of India. Surprising, there was no evidence of causality in respect of Sri Lanka despite the country’s heavy dependence on exports, especially tea exports.

Al-Mamun and Nath (2005) employed co-integration procedures to test the validity of the export-led growth hypothesis using Bangladesh as a test centre. The study reported the following findings: Firstly, the study found a long-run relationship between exports and industrial production. Secondly, the study found a unidirectional relationship running from exports to economic growth, as well as from exports to industrial production. However, the study did not find evidence of a short-run causal relationship between exports and industrial production

Cui and Shen (2011) assessed the relationship of international trade in financial services and economic growth in China through the use of multiple regression models, co-integration and error correction procedures. The results are that there is a long-run equilibrium relationship between the two modes of financial service trade, and that both of them improved the economic growth of China during the period under examination.

Mina (2011) using econometric data, measured the impact of Africa’s trade with China for the period covering 1995 to 2008. The study reported four important findings. Firstly, the study did not find any evidence to suggest that exports to China helps to promote economic growth in Africa. Secondly, the study found that countries that export one major commodity to China have a greater possibility of benefitting in terms of economic growth than those with diversified export-base. Thirdly, the study found that imports from China were generally promoting economic growth in Africa. Lastly, the finding of the study supports the hypothesis which states that the destination of a country’s exports matter, especially when it comes to the promotion of economic growth.

Kehinde et al., (2012) studied empirically the impact of international trade on economic growth in Nigeria from 1970 to 2010. The study made use of multiple regression models, co-integration and error correction procedures. The study revealed that three variables, namely export, foreign direct investment and exchange rate are statistically significant at 5 percent. These variables were also observed to be positively related to real GDP, while other variables such as import, inflation rate, openness exert a negative influence on real GDP. The study demonstrates that increased participation in global trade helps Nigeria to reap static and dynamic benefits of international trade. Both international trade volume and trade structure towards high technology exports resulted in a positive effect on Nigeria’s economy. In addition, the authors recommended that the government of Nigeria should design appropriate strategies that can boost exports, stimulate foreign direct investment and maintain exchange rate stability in order for its economy to achieve greater growth rates.

Sheefeni and Kalumbu (2014) investigated the factors that led to changes in terms-of-trade and also how terms-of-trade had an impact on Namibia’s economic growth. The study focused on the period 1980 to 2012 and employed time series techniques such as unit root, Granger causality, co-integration and impulse response functions in the context of a vector auto regression model. The results revealed a negative relationship between terms-of-trade and economic growth of Namibian. Moreover, the study found a unidirectional relationship running from economic growth to terms-of-trade

The empirical studies reviews outside the Gambia are far more than the studies review within the Gambia and this has leaded me to purse this studied anxiously. The empirical studies review relied upon the application of OLS techniques whiles others applied co-integration and error corrections techniques. This study will make use of multiple regression models, co-integration and error correction procedures due to its robustness.

Regarding the impact of trade on economic growth, some of the literature reviewed supported the theory which states that the destination of a country’s exports matter, especially when it comes to the promotion of economic growth whiles others argued that the effect of trade depends significantly on the specification of trade. Once there is trade specification, a positive and highly significant impact on economic growth can be found. Other studies confirm a significant positive relationship between trade liberalization and economic growth.

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