Trade openness and economic growth:Empirical evidence from Lesotho

Abstract

This paper examines the dynamic impact of trade openness on economic growth in Lesotho using the autoregressive distributed lag (ARDL) bounds testing approach. The study employs four indicators of trade openness, which include three trade-based proxies and an index of trade openness. The empirical results of this study show that trade openness has no significant impact on economic growth in both the short run and long run irrespective of which proxy of trade openness is used. These empirical results have important policy implications for Lesotho. Among others, this study suggests that the policymakers adopt policies aimed at boosting human capital and infrastructural development so that the economy grows to a threshold level required to reap the benefits of trade openness in its various forms. The policymakers should also pursue policies that enable the expansion in both international trade and economic growth, such that beneficial growth effects can be realized from trade with no exclusions.