Trade Openness, Factor Productivity, And Economic Growth: Recent Evidence From Oecd Countries (2000-2015)

This paper attempts to contribute to existing empirical studies on the implications of the degree of trade openness for total and individual factor productivity growth in 27 OECD countries over the 2000-2015 period. The period of our analysis covers the recent financial crisis, which was followed by the deepest post-war recession. We divide our sample into two sub-periods of 2000-2007 and 2008-2015, in order to shed some light on the impact of the recent financial/economic crisis. We also classify these 27 economies into three groups according to their trade openness, measured as the ratio of trade (total exports plus imports) to GDP. The growth model employed is based on the concept of an aggregate production function in which the rate of economic growth is a function of capital and labor accumulation and total factor productivity. We explicitly assume that total factor productivity depends, in turn, upon the rate of export expansion and public consumption. We then estimate the model using the random varying coefficients approach. Our group-wise empirical results support the view that higher degree of trade openness would result in higher export expansion and could contribute positively to total factor productivity and economic growth. Our period-wise results indicate that the positive impact of export expansion on economic growth became much stronger over the 2008-2015 sub-period.