Does Growth Respond to a Good Trade Policy?

Mamoon, Dawood and S. Murshed, Mansoob (2005): Does Growth Respond to a Good Trade Policy?

Abstract

This paper examines the importance of institutions vis-à-vis openness and trade policies in determining per-capita income differences across countries. A recent literature has tried to demonstrate that more open economies grow faster. On the other hand it has also been asserted that it is not openness per-se, but institutions and good governance that matter in promoting growth. This paper attempts to test this hypothesis across a cross-section of nations. Unlike other papers in the field we have tested not only for the degree of openness but also for trade policy indicators as well as a fuller set of six institutional variables. Our broad finding is that although institutions matter, trade policies are also relevant to promoting growth, whereas openness per se has little impact on growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Integration; Economic Development
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration

References

Acemoglu, Daron, Simon Johnson and James A. Robinson (2001), ‘The Colonial Origins of Comparative Development: An Empirical Investigation,’ American Economic Review, Vol. 91, No. 5, pp. 1369-1401 http://emlab.berkeley.edu/users/chad/e236c_f04/ajr2001.pdf Alcala, Francisco and Antonio Ciccone (2001), ‘Trade and Productivity,’ CEPR Discussion Paper No. 3095

Anderson, James E., and Marcouiller, D. (1999), ‘Trade, Insecurity, and Home Bias: An Empirical Investigation,’ NBER Working Paper No. 7000.

Davidson, Russel and James G MacKinnon G. (1993), “Estimation and Inference in econometrics, New York: Oxford University Press.

Dollar, David and Aart Kraay (2002), ‘Institutions, Trade and Growth,’ Paper Prepared for the Carnegie Rochester Conference on Public Policy.

Edwards, Sebastian (1998), ‘Openness, Productivity and Growth: What Do We Really Know?’ The Economic Journal, Vol. 108, pp. 383-398.

Esfahani, H. S, (1991) ‘Exports, Imports and Economic Growth in Semi-Industrialised Counties,’ Journal of Development Economics, Vol. 35, pp. 93-116.

Frankel, Jaffery, and David Romer (1999), ‘ Does Trade Cause Growth?’ American Economic Review, 89(3), 379-399.

Glaeser, Edward, L., La Porta, R., Lopez-de-Silanes, F., and Shleifer (2004), ‘ Explaining Growth: Institutions, Human Capital, and Leaders,’ (PD: Preliminary Draft) http://www.brook.edu/es/commentary/journals/bpea_macro/papers/20040325_glaeser.pdf

Greenaway D., Morgan, W., and Wright, P. (2001), ‘Trade Liberalisation and Growth in Developing Countries,’ Journal of Development Economics, vol.67, pp. 229-224.

Hall, Robert E., and Charles Jones (1999), ‘Why do Some Countries Produce So Much More Output per Worker than Others?’ Quaterly Journal of Economics, Vol. 114, pp. 83-116

Kaufman, Daniel, Aaart Kraay and Zoido-Lobaton (2002), ‘Governance Matters II: Updated Indicators for 2000/01,’ Policy Research Working Paper 2772, The World Bank. http://www.worldbank.org/wbi/governance/pdf/govmatters2.pdf

Lee, J. W. (1995), ‘Capital Goods Imports and Long- Run Growth,’ Journal of Development Economics, Vol 48, pp. 91-110.

Rodrik, Dani (1998), ‘Trade Policy and Economic Performance in Sub-Saharan Africa,’ NBER Working Paper 6562.

Rodriguez, Francisco and Rodrik, Dani (2000), ‘Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence,’ Macroeconomics Annual 2000, Ben Bernanke and Kenneth Rogoff, eds., MIT Press for NBER.

Rodrik, Dani (2003), ‘Ïnstitutions, Integration, and Geography: In the Search of the Deep Determinants of Economic Growth’ in Rodrik, ed., In Search of Prosperity: Analytic Country Studies on Growth, Princeton University Press, Princeton, NJ.

Rodrik, Dani, Subramanian, Arvind, and Trebbi, Francesco (2004), ‘Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development,’ Journal of Economic Growth, Vol. 9, no. 2, pp. 131-165

Rose, K., Andrew (2002), ‘Do WTO Members Have a More Liberal Trade Policy?’ NBER Working Paper 9347.

Sala-i-Martin, Xavier (2002), ‘The Disturbing “Rise” of Global Income Inequality,’ NBER Working Paper Series, No. w8904.

Sachs, Jeffrey D. and Andrew Warner (1995), ‘Economic Reform and Process of Global Integration,’ Brookings Papers on Economic Activity, (1), 1-118.

Schiff, Aaron (1999), ‘The Connection between Education and Growth: A Summary of Recent Cross-Country Empirical Evidence,’ Unpublished http://www.crnec.auckland.ac.nz/crnec/aaron/edugrow.pdf

Wei, Shang-Jin (2000), ‘Natural Openness and Good Government,’ NBER Working Paper No. W7765.

Wood, Christina (2004), ‘The Empirics of Trade and Growth: Where are the Policy recommendations,’ forthcoming International Economics and Economic Policy http://www.ires.ucl.ac.be/DP/IRES_DP/2004-13.pdf