Trade Openness,Economic Growth And Poverty Reduction In Sierra Leone

The aim of this study is to find out how trade openness does influences economic growth and poverty reduction in Sierra Leone.The study covers a period of 37 years,from 1980 to 2016.Time series data mainly sourced from the official website of World Bank was used in the empirical analysis.The techniques of estimation employed in the study were the Augmented Dickey Fuller(ADF)test,Johansen Cointegration,Granger causality test,Error Correction Model,Impulse Response Function and the Ordinary Least Square(OLS).Empirically,the unit root test results indicated that,the series employed in the study for the two models became stationary at first difference.For the empirical analysis of the trade openness-economic growth model,the Johansen cointegration test indicated one cointegrating equation meaning,there is a long run relationship between the variables used in the model.This was followed by the Error Correction Model(ECM)to see the speed of adjustment of the variables in the short run.The results indicated that LGDP has a negative point estimate of 0.057 indicating the speed at which it reverses back to its long-run equilibrium.Thus,about 5.7%error of GDP is corrected yearly.LTRAD which is the trade openness variable also has a negative coef ficient of about 0.44 indicating the speed of adjustment to equilibrium.About 44.0%error of the trade openness variable is corrected yearly.This study is also of the prime aim of finding out the channel through which trade openness does influences economic growth and poverty reduction in Sierra Leone.On that note,the study interacted trade openness variable with the agricultural sector of the economy of Sierra Leone(LTRAD*AGR).With the error correction results,it reveals that,the inadequacy in the agricultural sectors contribution to trade which goes a long way to stimulate economic growth and reduce poverty is improved by about 39.0%yearly.Furthermore,household consumption expenditure(LHCE)has a negative coefficient of about 0.09,meaning on yearly basis,the error of this series is corrected by about 9%.Among all the variables used in this model,it is suggested that,LTRAD has the highest speed of reversing to equilibrium.In addition,the granger-causality test indicated that GDP granger-cause TRAD suggesting a unidirectional causality.The OLS results of the trade openness-economic model indicated that trade openness has positive influence on economic growth in Sierra Leone.The results further indicated that,the interactive term,trade and agricultural sector of the economy has negative effect on economic growth in the country even though statistically significant.Gross Capital Formation(GCF)has a negative effect on economic growth in the country.In summary,all the variables used in this model are statistically significant to explain economic growth in Sierra Leone.With respect to the trade openness-poverty reduction model,the Johansen cointegration results indicated three cointegrating equations meaning,there is a long-run relationship between trade openness and poverty reduction in Sierra Leone.The granger-causality test showed bidirectional causality between trade openness and household consumption expenditure(poverty)in Sierra Leone.The OLS results of the trade openness-poverty reduction model indicated,trade openness has positive influence on household consumption expenditure in Sierra Leone.This means,trade openness helps reduces the high incidence of poverty in the country.The results further indicated that,the interactive term,trade and agricultural sector of the economy has negative influence on household consumption expenditure in Sierra Leone even though statistically significant.Meaning,once the population of the country is mostly rural,it is through the agricultural sector the incidence of poverty can be reduced in the country.Government Consumption Expenditure(GCE),which is a component of investment in the domestic economy,has a minimal positive effect on household consumption expenditure in the country.This means government consumption expenditure minutely helps reduces the high incidence of poverty in the country.In addition,the size of the economy has a positive influence on household consumptionexpenditure in Sierra Leone.It means,with progressive economic growth,the trickledown effect should be the general well-being(poverty reduction)of the citizens of Sierra Leone.The impulse response function results showed that,a positive change in trade openness leads to household consumption expenditure reacting positively and the reverse.The following recommendations were therefore made.Desperate efforts should be made to develop the agricultural sector of the economy,which will create more job opportunities and increase national output with the overall effect being poverty reduction.Also government should embark on practical ways of revenue mobilization for investment purposes to trigger economic growth and reduce poverty in Sierra Loene.