Abstract
One of the more celebrated propositions found in every international trade text is the case that trade liberalization is associated with declining prices, so that protectionism is inflationary. In line with this view Romer (1993) postulates a hypothesis that inflation is lower in small and open economies. The objective of this study is to examine the Romer’s hypothesis in Pakistan. For this purpose multivariate cointegration and Vector Error Correction Model (VECM) techniques have been applied. The study covers the time period from 1960 to 2007. The empirical findings under cointegration test have shown that there is a significant negative long run relationship between inflation and trade openness, which confirms the existence of Romer’s Hypothesis in Pakistan.
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Article Details
- Year: 2012
- Volume: 33
- Issue: 2
- Pages: 33 - 52
- Accepted: 30.04.2012
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DOI:
https://doi.org/10.5281/zenodo.21077910 -
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How to Cite?
Tahir Mukhtar (2012). Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan. Journal of Economic Cooperation and Development, 33(2), 33-52. https://doi.org/10.5281/zenodo.21077910
