Nexus Between International Trade and Economic Growth

Trade is considered by many economists as an engine of economic growth. Trade openness accelerates economic development is believed by many economists. The main objective of this paper is to study the link between economic growth and trade and also to study how the link varies according to the level of income of the countries. There are allegations by poor and middle income countries that trade is not promoting growth for them but it helps the rich countries to become richer. The data for all the countries of the world is collected from the official website of World Bank from 1990 to 2014. The countries are divided into high income countries, middle income countries and low income countries. VECM is used to study the long–run- and short-run causality between trade and growth.