Working Paper Series: Special Edition of 2016 to 2018 Interns

2007 International Cricket Council (ICC) World Cup. Growth spiral downwards thereafter as the 2008/2009 global financial crisis negatively impacted economies of the member countries in the currency union. . Given the current growth performance, the constant threat of exogenous shocks and the need to be relevant and competitive players in the world economy, the ECCU has placed tremendous focus on spurring growth in a sustainable manner. This research therefore adds to the discussion through an empirical investigation of the causal link between FDI and trade openness on economic growth in the ECCU. Theoretically, there are a number of channels through which each of these variables are likely to affect the ECCU economies. For instance, FDI can be a promoter of economic growth in less developed countries (LDCs) as it allows for technological spillovers, strengthening of the supply capabilities of the host country, and potential enhancement of international competitiveness. As it relates to trade openness, this enables an economy to achieve a faster rate of growth contingent on the rate at which new technologies and skills are absorbed. In addition, trade openness can induce lower transaction costs of investment and promote In the ECCU, there limited studies have been undertaken focusing specifically on the impact of openness (both FDI and trade openness) on economic growth. Moreover, previous studies would have used static empirical methodologies such as Ordinary Least Squares (OLS), which may have been victim to statistical issues. As a result, this research finds four opportunities to contribute to the existing literature. Firstly, this study uses two openness indicators, FDI and trade openness, on the ECCU’s economic growth. Secondly, the study investigates openness in the case of ECCU countries solely, therefore, the findings would produce specifics recommendations taking into consideration the specifics of the ECCU region. Thirdly, the study uses the panel Vector Error Correction Model (VECM) to investigate the impact of economic openness on economic growth. Within the VECM framework, short-run, long-run and causal relationships are investigated utilizing the Wald coefficient test, cointegration analysis and the Granger Causality test, respectively. Fourthly, in a contemporary and comparative approach, the study captures trade openness with tourism arrivals instead of the traditional metric.

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