TRADE LIBERALIZATION AND FISCAL STANCE IN SELECTED DEVELOPING COUNTRIES: A GRANGER CAUSALITY APPROACH IN VAR FRAMEWORK

Abstract

The main purpose of the study is to conduct a causality analysis of trade liberalization and fiscal stance. For this purpose, causality between tax-trade, government expenditures-trade, external debt-trade and official development assistance-trade have been examined in selected developing countries. The study has applied the three-step procedure of Granger causality in the VAR framework. The period is taken from 1996 to 2019. The results show that there is bidirectional causality between trade liberalization and fiscal stance in nearly all countries while short-run causality differs in the group of countries. The study suggests that the policymakers may formulate policies of trade openness which may enhance the tax revenues as well as government expenditures in developing countries.