On the Causal Dynamics Between Economic Growth, Trade Openness and Gross Capital Formation: Evidence from BRICS Countries

Abstract

The present study investigates the long-run association and direction of causality among economic growth, trade openness and gross capital formation in Brazil, Russia, India, China and South Africa (BRICS) nations. This article applied autoregressive distributed lag (ARDL) and vector error correction model to examine the long-run association and casual relationship among the competing variable. The ARDL bound test results indicate long-run relationship among economic growth, trade openness and gross capital formation. Granger causality results reveal unidirectional causality from trade openness to economic growth in India and that Brazil supports trade-led growth hypothesis while bidirectional causality is found between trade openness and economic growth in China supporting feedback hypothesis. In addition, the empirical evidence of unidirectional causality moving from economic growth to trade openness is found in South Africa validating growth-led trade hypothesis. As trade openness is a significant determinant of economic growth in BRICS, the member countries should adopt policies towards trade liberalization to sustain economic growth. Moreover, these emerging markets offer a pool of investment opportunities for the global managers.

Is Achieved Economic Development Environment Friendly? A New Insight From Central and Eastern Europe

“…In other words, TO shows a significant effect on economic development, endorsing the tradeinduced growth hypothesis. Our findings support the prevailing literature and empirical confirmation presented by a case study of SADC nations by Maune (2019), a study related to Turkey by (Alsamara, Mrabet et al 2019), and a study of BRICS economies by Rani and Kumar (2019). Likewise, some studies contrasted with our findings, such as Olaifa et al (2013) and .…”

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“…In addition, another important result that has been obtained in the results is that the GDP has significant along with positive impact on financial development of a country. These two aspects are very much related to each other and many studies in the past have confirmed this result (Chen & Lei, 2018;Nguyen, Su, & Nguyen, 2018;Rani & Kumar, 2019). As the GDP of a country increases, different sectors of the country get benefited financially from this increase in GDP and thus the FD is increased.…”

Innovations and ICT: Do They Favour Economic Growth and Environmental Quality?

“…It is very common that in the long run, more outward-oriented economies are associated with better economic growth (see, for instance, [97][98][99][100][101], among others), and our results support this statement. In the same line, gross fixed capital formation is positively linked to economic growth (as stressed by [102][103][104], among others). On the contrary, inflation rate deteriorates economic growth (the same conclusion was achieved by [105,106], among others).…”