Openess and Economic Growth: The case of European Expansion

One of the rudiment features of international trade theory is that open economies achieve high economic growth rates than closed economies. This dissertation attempts to investigate the relationship between openness and growth by testing the hypothesis that openness causes growth. The analysis in this dissertation is limited to the member states of the European Union and some Eastern European countries. The data are analysed using the panel estimation. The sample groups of countries are divided into five groups. The countries are categorised by their period of accession to the European Union. The results of this dissertation show proposition that openness leads to economic growth is validated in three first groups of countries. However, for the last two groups of countries the hypothesis is not validated. For the group of countries that have not yet joined the European Union, the results show that openness does not cause growth. Moreover, there is also no clear evidence that openness cause growth for the group that consists of Eastern European countries that have just joined the European Union.