CARIFORUM and UK EPA Study

The Granger-Causality test, with the accompanying cointegration extension, is conventionally and pervasively utilized to establish such a relationship; see Engle Granger (1987), Rubin (2004), Ramirez (2006), Torayeh (2011), Hill et al. (2011), and Warburton (2018).

The Granger test estimates pairs of regressions, say:

n

n

1 å å å å i a t i - t i = j n n i l t i - X X = + +

Y

i t j Y u b - +

=

1

t

t

;

X

i t j Y u d - +

=

2

t

t

(2)

1

1

i

j

=

=

the disturbances, u 1t and u 2t are presumed to be uncorrelated.

Note 2: Openness in terms of the relative share (RS) as opposed to TS can be defined as:

(

)

X M +

; i

RS

=

n

å

(

)

X M +

j

(4) where X and M are for exports and imports respectively, i is for the i th country in the sample of j countries. Further, when data on tariffs and nontariff restrictions (barriers) are unavailable or unreliable, openness becomes the most valuable alternative indicator of restrictive (illiberal) or freer trade regime. Data on taxes and surreptitious trade policies are usually incomplete and unreliable. Note 3: The goal of Bayesian probability estimates is to use inadequate prior information (data) to generate a probability distribution from which useful inferences can be made. Consider Equation 5: 1 j =

( | )* ( ) ( ) p D T p T

( | )

;

f T D

=

setting T= θ , a probability distribution becomes more meaningful: p D

(5)

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