TRADE LIBERALIZATION AND ECONOMIC GROWTH IN CAMEROON: EVIDENCE FROM ARDL BOUNDS TESTING (1980-2024)

Abstract

This study examines the dynamic relationship between trade openness and economic growth over the period 1980-2024 using an Autoregressive Distributed Lag (ARDL) modeling framework. The control variables for the study include Foreign Direct Investment (FDI) and Exchange. Descriptive statistics reveal considerable volatility in economic growth, alongside moderate fluctuations in trade openness and exchange rate movements, while FDI inflows remain relatively low and unstable. Correlation results indicate positive and statistically significant associations between economic growth and trade (r = 0.5912), FDI (r = 0.4089), and exchange rate (r = 0.3865), providing preliminary evidence of growth-enhancing external sector linkages. Unit root tests confirm a mixed order of integration, with GDP growth integrated at level and other variables at first difference, thus justifying the ARDL bounds testing approach. The bounds test strongly confirms the existence of cointegration, indicating a stable long-run equilibrium relationship among the variables. Long-run estimates reveal that trade openness and exchange rate exert positive and statistically significant effects on economic growth, while FDI shows a positive but weakly significant impact. In the short run, FDI exhibits a negative and significant effect, reflecting adjustment costs and structural constraints.

The error correction term is negative and highly significant, indicating a rapid speed of adjustment toward long-run equilibrium. Diagnostic tests confirm the robustness of the model, showing no evidence of serial correlation, heteroskedasticity, or non-normality. The findings emphasize the importance of trade integration and exchange rate stability in promoting sustained economic growth, while highlighting the need to strengthen domestic absorptive capacity to fully benefit from foreign investment.