Openness and Inflation Rate: The Study of Selected Countries using Panel Quantile Regressions

Document Type : Original Article


Assistant Professor of Economics, Faculty of Humanities and Social Sciences, University of Golestan, Gorgan, Iran


Identifying the causes of inflation has always been one of the most important questions in macroeconomics. Developing world trade has led the international economics indicators to enter into inflation modeling. Accordingly, one of the variables that can affect inflation is the degree of openness. Theoretical foundations expect that openness of country to reduce the inflation rate. The amount of inflation has a significant effect on the type of impact that openness has on the inflation rate. Therefore, this study tests the above hypothesis in 4 groups of countries by using Panel Quantile Regressions method for the period 2019-1980: 1- Europe (7 countries) 2- East Asia and Pacific (10 countries) 3- Middle East and North Africa (9 countries) 4- Latin America and Caribbean (18 countries). The results of the study show that the inflation rate often decreases with openness, but this effect was closely explained to the size of inflation and the structure of the country's groups. Trade openness has had the least impact on inflation in East Asia and the Pacific and the largest impact on inflation in the Middle East and North Africa. In addition, the above results change with the change in the trade openness index, so the increasing exports will reduce the negative effect of imports on inflation.


- Alavi Bajgani, S., Peykarjo, K., Hojabr Kiani, K. & Torabi, T. (2020). Investigating the Asymmetric Effects of Fiscal Policy on Economic Growth in Iran: A Quantile Regression Approach. Journal of Economics and Modeling, 10(4), 126-150 (in Persian).
- Alfaro, L., (2005). Inflation, openness, and exchange-rate regimes: the quest for short-term commitment. Journal of Development Economics, 77, 229-249.
- Al-Nasser, O. M., Sachsida, A., & Mário Jorge Cardoso de M. (2009). The openness inflation puzzle: Panel data evidence. International Research Journal of Finance and Economics, 28, 169-181.
- Ashra, S. (2002). Inflation and openness: a study of selected developing economies. Working Paper No. (84). Indian Council for Research on International Economic Relations, New Delhi, India.
- Ball, L. (2006). Has globalization changed inflation? National bureau of economic research. Working Paper No. 12687.
- Ball, L. & G. Mankiw. (1995). Relative price changes as aggregate supply shocks. Quarterly Journal of Economics, 110, 161-93.
- Ball, L. M. (2006). Has globalization changed inflation? National bureau of economic research, working paper No. 12687, November.
- Bleaney, M. (1999). The disappearing openness inflation relationship: a cross country analysis of inflation rate. IMF working paper, WP/99/161.
- Borio, C. & F. Andrew. (2007). Globalization and inflation: New cross country evidence on the global determinants of domestic inflation, BIS working papers, No. 227, May
- Bowdler, C. (2003). Openness and the Output Inflation Trade Off. University of Oxford. viewpdfinternational.
- Bowdler, C., & Malik, A. (2017). Openness and inflation volatility: Panel data evidence. The North American Journal of Economics and Finance, 41, 57-69.
- Canay, I.A. (2011). A simple approach to quantile regression for panel data. Econometrics Journal, 14, 368–386.
- Daniels, J. & Vanhoose, D.D. (2004). Openness, The Sacrifice Ratio and Inflation: Is There a Puzzle? economics_papers/ EWPS058.pdf
- Evans, R. W. (2007). Is Openness Inflationary? Imperfect Competition and Monetary Market Power. Working Paper, Vol. 1, No. 2007, Federal Reserve Bank of Dallas.
- Galvao Jr., A.F., (2011). Quantile regression for dynamic panel data with fixed effects. Journal of Economics, 164, 142–157.
- Ghosh, A. (2014). How do openness and exchange-rate regimes affect inflation? International Review of Economics & Finance, 34, 190-202.
- Gruben, C. W., & Mcleod, D. (2004). The openness-inflation puzzle revisited. Applied Economics Letters, 11, 465-468.
- Jafari Samimi, A. & Ghaderi, S., Hosseinzadeh, R. & Nademi, Y. (2012). Openness and Inflation: New Empirical Panel Data Evidence. Economics Letters, 117(3), 573-577 (in Persian).
- Jafari Samimi, M. M., & Shadabi, L. (2009). Economic liberalization and inflation: An intergovernmental analysis (Persian). Quarterly Journal of Economical Modeling, 2(8), 27-46 (in Persian).
- Jin, J. (2000). Openness and Growth: an Interpretation of Empirical Evidence from East Asian Countries. Journal of International Trade and Economic Development, 9, 5-17.
- Koenker, R. (2004). Quantile regression for longitudinal data. J. Multivar. Anal. 91(4)–9189.
- Kurihara, Y. (2013). International openness and inflation in Asia. Research in World Economy, 4(1), 70-75.
- Lamarche, C. (2010). Robust penalized quantile regression estimation for panel data. Journal of Econometrics. 157, 396–408.
- Lin, F., Mei, D., Wang, H., & Yao, X. (2017). Romer was right on openness and inflation: Evidence from Sub-Saharan Africa. Journal of Applied Economics, 20(1), 121-40.
- Machado José A.F.  & Silva, J.M.C. S. (2019). Quantiles via moments. Journal of Econometrics, 213, 145–173.
- Mahmoodi, E. (2019). The Effect of Economic Globalization on Inflation in Asian Developing Countries. Quarterly Journal of the Macro and Strategic Policies, 7(1), 46-65 (in Persian).
- Majumder, M. K., Raghavan, M. & Vespignani, J. (2020), Oil curse, economic growth and trade openness. Energy Economics, 91, 104896.
- Reinhart, C., & Rogoff, K. (2004). A Modern History of Exchange Rate Arrangements: A Reinterpretation. Quarterly Journal of Economics, 119, 1-48.
- Rogoff, K. (2003). Globalization and global disinflation, in monetary policy and uncertainty: adapting to a changing economy. a symposium sponsored by the federal reserve bank of Kansas city, 28-30 august, Jackson hde, pp 77-112.
- Romer, D. (1993). Openness and Inflation: Theory and Evidence. Quarterly Journal of Economics, 108, 869–903.
- Sachsida, A., Carneiro, F. G., & Loureiro, P. (2003). Does greater trade openness reduce inflation? Further evidence using panel data techniques. Economics Letters, 81, 315-319.
- Salmanpour, A., Taghi Soltani, M., & Shafei, E. (2009). The consequence of globalization of the economy on internal inflation in Iran. Quarterly Journal of Economic Modeling, 1(7), 11-93 (in Persian).
- Sikdar, A., Nobinkhor, K. & Saadullah, Z. (2013). Trade openness and inflation: A test of Romer hypothesis for Bangladesh, MPRA Paper No. 65244,
- Tayeb Nia, A., & Zandiyeh, R. (2009). The effects of the globalization process on inflation in Iran. Iranian Journal of Economic Research, 13(38), 53-96 (in Persian).
- Terra, C. T. (1998). Openness and inflation: a new assessment. Quarterly Journal of Economics, 113(2), 641-648.
- Watson, A. (2016). Trade openness and inflation: The role of real and nominal price rigidities. Journal of International Money and Finance, 64, 137–169.