Open AccessDoes Trade Openness Reduce Inflation? Empirical Evidence from Pakistan
Author(s) -
Tahir Mukhtar
Publication year - 2010
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2010.v15.i2.a2
Subject(s) - economics , romer , openness to experience , cointegration , inflation (cosmology) , empirical evidence , monetary economics , econometrics , psychology , social psychology , physics , cartography , theoretical physics , geography , philosophy , epistemology
One of the more celebrated propositions found in international trade isthe case that trade liberalization is associated with declining prices, so thatprotectionism is inflationary. In line with this view, Romer (1993) postulates thehypothesis that inflation is lower in small and open economies. The objective ofthis study is to examine Romer’s hypothesis in Pakistan. For this purpose, wehave used multivariate cointegration and a vector error correction model. Thestudy covers the period from 1960 to 2007. The empirical findings under thecointegration test show that there is a significant negative long-run relationshipbetween inflation and trade openness, which confirms the existence of Romer’shypothesis in Pakistan.