TAJUL ARIFFIN MASRON AND ZULKORNAIN YUSOP, UNIVERSITY PUTRA MALAYSIA, MALAYSIA
One of the important elements related to the variation in the efficiency of investment and productivity is the role of openness. The relationships between openness and allocation efficiency as well as openness and productivity have are linked with the adverse selection phenomenon in the developing countries which resulted in inefficient resource allocation and low TFP. Therefore, this paper is intended to investigate the impact of openness on allocation efficiency (ICOR) and productivity growth (TFP growth). Applying the unrestricted error correction model (UECM), we found no clear evidence that openness has led to improvement in allocation efficiency. Nevertheless, it has helped in technology improvement.
Keywords: Icor; Allocation Efficiency; Productivity; Openness; UECM.