Economic growth, cyclical volatility and the moderating role of trade openness policy. An empirical evidence from MENA countries

Abstract

This article analyzes the relationship between economic growth, cyclical volatility, and trade openness policy in the MENA  region from 1990 to 2023.  There are two primary stages to the analysis.  First, the most appropriate panel estimation technique is chosen among OLS, Fixed Effects Model (FEM), and Random Effects Model (REM). Second, a Dynamic System-GMM approach is applied, complemented by the Johnson – Neyman approach to assess the moderating effects of trade openness. The analysis is conducted separately for two MENA sub-groups: Oil-Exporters and Oil-Importers. The results reveal distinct patterns between the two sub-groups. MENA oil importers report a statistically significant -negative relationship- between economic growth and cyclical volatility.  As for, MENA oil exporters, this connection is -positive-, indicating that oil revenues stabilize economic swings.  Trade openness has a positive correlation with economic growth in both categories.  ALSO, trade openness serves as an important -moderator-, lowering the negative effects of cyclical volatility on growth in both sub-groups.  even though, the range of moderating influence varies: oil exporters have a wider and more flexible range of relevance, whereas oil importers have a smaller range, necessitating more accurate policy calibration. The study illustrates that, while trade openness typically promotes economic growth in the MENA area, its moderating effect on volatility varies depending on each subgroup's economic structure.  Oil exporters benefit from increased volatility resistance, whereas oil importers must implement more focused openness measures to prevent the amplification of instability effects on GDP. The findings suggest that policymakers in MENA oil-importing countries should carefully balance trade liberalization in order to avoid unexpected volatility-induced downturns.   Oil-exporting countries, on the other hand, should use openness to stabilize their economies while diversifying them to reduce reliance on oil.   Improving trade integration and enacting counter-cyclical policies can assist both groups create economic resilience and long-term success.