Economic Integration and Trade Openness in QUAD Nations: Empirical Evidence from Panel Cointegration and ARDL Models

Abstract

This article discusses the question, does trade openness (TO) lead to economic growth in the Quadrilateral Security Dialogue (QUAD) countries (including the USA, Japan, India and Australia). Being driven by the paucity of the existing empirical data that targets QUAD countries as a strategic economic bloc, thus the study fills a valuable gap in the work on trade and economic growth. For the filling gap, this article studied a panel data set for 23 years (2000–2022). The analysis comprises a combination of both short and long-run dynamics of the variables using annual panel data through the autoregressive distributed lag (ARDL) framework, including pooled mean group (PMG), mean group (MG) and dynamic fixed effects (DFE) estimators. The empirical findings indicate that TO and foreign direct investment (FDI) inflows have positive and significant effects on economic growth in the long run and the macroeconomic stability, which is indicated by the controlled inflation and proper reserves, has a complementary effect. It has been found that the PMG estimator is the most efficient, which means that there are homogeneous long-run relations over all the economies of the QUAD countries with heterogeneous short-run adjustment. These results are solid arguments that trade-led growth theory applies in relation to developed and emerging markets in the framework of QUAD countries. The results point to trade liberalization, FDI magnetism and exchange rate stability as essential drivers of sustained economic growth. Policymakers can use them to create targeted policies that are less likely to drive trade barriers, create investor-friendly conditions, and stabilize the monetary balance. This study also points to the importance of restrained inflation and institutional transparency in long-term economic resilience and stability.