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Impact of Openness on Growth in Different Country Groups

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  • Chengang Wang
  • Xiaming Liu
  • Yingqi Wei

Abstract

This paper evaluates the impact of openness on growth in different country groups using a panel of 79 countries over the period 1970-98. It distinguishes itself from many existing studies in three aspects: Firstly, both trade and FDI are included as measures of openness. Secondly, countries are classified into high-, middle- and low-income groups to compare the roles of trade and FDI in these groups. Thirdly, the possible problems of endogeneity and multicollinearity of trade and FDI are carefully dealt with in a panel data setting. The main findings are as follows. Total trade has a general positive impact on growth in all country groups, although the impact from imports is not significant in high-income countries. FDI has a positive impact on growth in high- and middle-income countries, but not in low-income countries. With the existing absorptive capabilities, low-income countries can benefit from both exports and imports, but not from FDI. These findings suggest that trade and FDI affect growth through different channels and under different conditions. The paper also discusses important policy implications. Copyright 2004 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 27 (2004)
Issue (Month): 4 (04)
Pages: 567-585

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Handle: RePEc:bla:worlde:v:27:y:2004:i:4:p:567-585

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Cited by:
  1. Shahbaz, Muhammad, 2012. "Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan," Economic Modelling, Elsevier, Elsevier, vol. 29(6), pages 2325-2339.
  2. Mitze, Timo, 2011. "Within and Between Panel Cointegration in the German Regional Output-Trade-FDI Nexus," Investigaciones Regionales, Asociación Española de Ciencia Regional, Asociación Española de Ciencia Regional, issue 21, pages 93-118.
  3. Yongkul Won & Frank S.T. Hsiao & Doo Yong Yang, 2008. "FDI Inflows, Exports and Economic Growth in First and Second Generation ANIEs : Panel Data Causality Analyses," Trade Working Papers 21939, East Asian Bureau of Economic Research.
  4. Anupam Das & Biru Paksha Paul, 2011. "Openness and growth in emerging Asian economies: Evidence from GMM estimations of a dynamic panel," Economics Bulletin, AccessEcon, vol. 31(3), pages 2219-2228.
  5. Tekin, Rıfat Barış, 2012. "Economic growth, exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis," Economic Modelling, Elsevier, Elsevier, vol. 29(3), pages 868-878.

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