Trade Openness and Economic Growth: Short and Long Term Panel Data Analysis

This study examines the effect of trade openness on economic growth using an unbalanced panel dataset covering up to 217 countries/economies during 2011-2024. The study is motivated by the need to reassess the openness-growth nexus in a contemporary global economy characterized by post-crisis adjustment, trade-policy uncertainty, pandemic disruption, supply-chain reconfiguration, and rising concerns over trade fragmentation. Economic growth is measured by annual GDP growth, while trade openness is proxied by trade as a percentage of GDP. Population growth, life expectancy, gross capital formation, and foreign direct investment are included as control variables. The empirical strategy applies pooled least squares, random effects, fixed effects, and dynamic fixed-effects specifications with robust standard errors. The results indicate that trade openness has a positive and statistically significant effect on economic growth in both short-term and long-term estimations. This relationship is observed in the full sample as well as in high-income and lower-middle-income country groups, although the magnitude differs across income categories. These findings suggest that trade openness remains relevant as a source of growth, but its effectiveness depends on domestic productive capacity, investment quality, and the ability of countries to transform external integration into real economic performance. The study contributes by providing updated evidence from the 2011-2024 period and by positioning trade openness as a growth-enhancing mechanism whose impact is conditional on income-group heterogeneity and absorptive capacity.