Trade openness and economic development in the UAE: an asymmetric approach

The purpose of this paper is to offer a review of the trade policy in the UAE. It also investigates the dynamic interaction between trade openness and GDP per capita in this emerging economy.

The asymmetric generalized impulse response functions and the asymmetric causality tests developed by Hatemi-J are used.

The results from asymmetric generalized impulse response functions indicate that a positive permanent shock in the trade openness results in a significant positive response in the cumulative sum of the positive component of the GDP per capita. Such a response is not found for the negative shocks in the trade openness. Furthermore, neither a positive nor a negative shock in the GPD per capita results in any significant response in the trade openness. These empirical findings are also supported by the implemented asymmetric causality tests.

This is the first attempt that investigates the impact of trade openness on economic performance in the UAE. Unlike previous literature on the topic, this paper allows for asymmetric impacts in the empirical model.