The Long-Run Effects of Trade on Income and Income Growth

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The Long-Run Effects of Trade on Income and Income Growth

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Allan D. Brunner

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Allan D. Brunner

Abstract

This paper examines the dynamic relationship between trade and income. While most economists agree that increased trade leads to an increase in average income, economic theory is ambiguous about the possible effects on the long-run growth rate of the economy. Using a dynamic panel data model, the hypotheses of no long-run effects of trade on income and on income growth are tested explicitly. The possibility of endogeneity is addressed by constructing an instrument for trade by extending Frankel and Romer's (1999) cross-sectional approach to the case of a panel data model. The empirical results indicate that trade has a large and significant effect on the level of income, but the effect on income growth is small and non-robust to model specification.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/37.

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Length: 38 pages
Date of creation: 19 Mar 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/37

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References listed on IDEAS
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Other versions:
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Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Vivek B. Arora & Athanasios Vamvakidis, 2004. "How Much Do Trading Partners Matter for Economic Growth?," IMF Working Papers 04/26, International Monetary Fund. [Downloadable!]

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