Macroeconomic Determinants of Trade Openness: Empirical Investigation of Low, Middle and High-Income Countries

Abstract

© 2020, The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG. This study aims to determine the effects of macroeconomic factors on trade openness. We use panel regression with heterogeneous time trends to explore the causal relationship between macroeconomic factors and trade openness. The analysis relies on a sample of 85 countries for the period 1990–2017. We segment the data set into three sub-panels according to per capita income classification that distinguishes countries as belonging to low-income, middle-income, and high-income groups. Various types of panel regression are also considered, and it is found that time fixed effects model is the best model for all income groups. The key finding of this study is that GDP per capita shows a decisive evidence for its positive effects on trade openness in all income groups.