Impact of Trade Openness and Exchange Rateon Economic Growth : Empirical Evidences from SAARC Countries

Abstract

Inflation, exchange rate and trade openness are the key macroeconomic indicators that play a significant role in improving economic growth. The present study is an effort to understand the relationship of these variables with the economic growth of SAARC countries. The purpose and objective of the research is to evaluate and determine the influence of exchange rate, trade openness and inflation on the economic growth of SAARC countriesnamely: Pakistan, Sri Lanka, India and Bangladesh. Data ranging from 1975 to 2014, being collected through secondary source such as Penn World table (PWT), International Financial Statistics (IFS) and various issues of World Development Indicators. Fixed effects method has been applied to examine the empirical results. The results show both exchange rate and inflation have a negative relationship with economic growth and trade openness has positive relationship with economic growth for the sample selected countries over a time period of 1975-2014. Moreover, all the variables are statistically significant at conventional level of significance.