The Study of the Relationship between Trade Openness and Macroeconomic Variables in Islamic Countries of the G8 Based on Panel VAR Approach

Abstract. Today, foreign trade plays a key role in leading the economic growth and development programs of societies and has heterogeneous effects on the countries’ economies due to the degree of development of countries. This study focuses on developing countries and members of the D8 group and investigates the effect of trade openness on macroeconomic variables; also Iran is in this group. Therefore, the impact of trade openness on the variables such as economic growth, inflation and employment growth has been studied during 1997-2017 in D8 countries by using Vector Auto regressive (VAR) model. The main feature of the PVAR method that can be studied a large group of countries with different characteristics is the interconnected and simultaneous shocks in this model. The results of impulse response functions show that in the short run increasing of trade openness has led to increasing of out put growth, inflation and growth of employment rate. Moreover, the results show that one unit change in standard error of trade openness has no effect in the long run on three above variables. Therefore, it seems that the members of the G8 by adopting strategies such as regionalism in the process of globalization and creation of new comparative advantages, could expand the possibility of enjoying the benefits of Trade Openness.