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Trade Liberalization and Growth: New Evidence

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  • Romain Wacziarg
  • Karen Horn Welch

Abstract

A new data set of on openness indicators and trade liberalization dates allows the 1995 Sachs and Warner study on the relationship between trade openness and economic growth to be extended to the 1990s. New evidence on the time paths of economic growth, physical capital investment, and openness around episodes of trade policy liberalization is also presented. Analysis based on the new data set suggests that over the 1950--98 period, countries that liberalized their trade regimes experienced average annual growth rates that were about 1.5 percentage points higher than before liberalization. Postliberalization investment rates rose 1.5--2.0 percentage points, confirming past findings that liberalization fosters growth in part through its effect on physical capital accumulation. Liberalization raised the average trade to GDP ratio by roughly 5 percentage points, suggesting that trade policy liberalization did indeed raise the actual level of openness of liberalizers. However, these average effects mask large differences across countries. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/wber/lhn007
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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 22 (2008)
Issue (Month): 2 (June)
Pages: 187-231

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Handle: RePEc:oup:wbecrv:v:22:y:2008:i:2:p:187-231

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  1. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  2. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December.
  3. Alberto F. Ades & Edward L. Glaeser, 1994. "Evidence on Growth, Increasing Returns and the Extent of the Market," NBER Working Papers 4714, National Bureau of Economic Research, Inc.
  4. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
  5. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  6. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  7. Aaron Tornell, 1998. "Reform from Within," Harvard Institute of Economic Research Working Papers 1827, Harvard - Institute of Economic Research.
  8. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2002. "An African Success Story: Botswana," CEPR Discussion Papers 3219, C.E.P.R. Discussion Papers.
  9. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  10. Wacziarg, Romain, 2000. "Measuring the Dynamic Gains from Trade," Research Papers 1654, Stanford University, Graduate School of Business.
  11. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  12. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
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