Xianbo Zhou ^a and Kui-Wai Li ^b

CSGR Working Paper 245/08

June 2008

 ^a APEC Study Center, City University of Hong Kong, and Lingnan (University) College, Sun Yat-Sen University, China.

^b Department of Economics and Finance and APEC Study Center, City University of Hong Kong.

Abstract

The paper studies the commutative and causality relationship between economic openness and indigenous factors. The construction of the Openness Index and the Indigenous Index provides a measure on the extent of openness and indigenous development among world economies. The two indices are used to study their commutative effect and causality. The empirical findings show that there is a positive and significant static effect of openness on indigenous factors and vice versa; however the latter is larger. There are bi-directional dynamic causality relationships between openness and indigenous factors. Indigenous factors help to forecast openness factors and vice versa.

JEL Classifications: C33, F02, O11.

Keywords: Openness, indigeneity, panel data model, commutative effect, causality.

Contact Details:

Kui-Wai Li, Department of Economics and Finance and APEC Study Center, City University of Hong Kong.

Tel: 852 27888805; Fax: 852 27888418;

E-mail: EFKWLI@CITYU.EDU.HK