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The Long-Run Effects of Tradeon Income and Income Growth

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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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Bibliographic Info

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

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Length: 39
Date of creation: 01 Feb 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/37

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Related research

Keywords: Economic growth; Development; Income; Economic models; trade share; gdp per capita; bilateral trade; growth rate; international trade; trade liberalization; changes in trade; increased trade; trade openness; gdp growth; trade effects; growth rates; real gdp; trade agreements; bilateral trade data; trade data; trade changes; trade barriers; trading partner; income differences; regional trade; foreign trade; trade flows; per capita income; income convergence; imported goods; regional trade agreements; transport costs; measure of trade; imperfect competition; adjustment period; trade values; trade growth; industry trade; free trade agreements; multilateral trade; trading partners; bilateral trade flows; factor accumulation; effects of trade liberalization; trade patterns; neighboring countries; trade protection; imported inputs; multilateral trade agreements; tariff barriers; non-tariff barriers; import protection; global integration; bilateral trade agreements; trade determinants; free trade; output growth; lowering trade; average trade; growth theories; economic convergence; dynamic growth; increased openness; open economies;

References

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  1. repec:umd:umdeco:rodriguez9901 is not listed on IDEAS
  2. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  3. 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.
  4. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series 809, The World Bank.
  5. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  6. Alberto Chong & Luisa Zanforlin, 2001. "Technological adaptation, trade, and growth," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(4), pages 565-592, December.
  7. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  8. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  9. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
  10. Ehsan U. Choudhri & Dalia Hakura, 2000. "International Trade and Productivity Growth," IMF Working Papers 00/17, International Monetary Fund.
  11. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  12. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  13. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-93, September.
  14. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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Citations

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Cited by:
  1. Vivek B. Arora & Athanasios Vamvakidis, 2004. "How Much Do Trading Partners Matter for Economic Growth?," IMF Working Papers 04/26, International Monetary Fund.
  2. Bruno S. Frey, 2011. "Political Economy: Success or Failure?," CESifo Working Paper Series 3684, CESifo Group Munich.
  3. Rao, B. Bhaskara & Vadlamannati, Krishna Chaitanya, 2010. "Globalization and growth in the low Income African countries with the extreme bounds analysis," MPRA Paper 21924, University Library of Munich, Germany.
  4. Bergheim, Stefan, 2007. "Pair-wise cointegration in long-run growth models," Research Notes 24, Deutsche Bank Research.
  5. Muhammad, Shahbaz, 2012. "Does Trade Openness Affect Long Run Growth? Cointegration, Causality and Forecast Error Variance Decomposition Tests for Pakistan," MPRA Paper 37391, University Library of Munich, Germany, revised 10 Mar 2012.
  6. Jose Romero, 2012. "Inversión extranjera directa y crecimiento económico en México: 1940-2010," Serie documentos de trabajo del Centro de Estudios Económicos 2012-12, El Colegio de México, Centro de Estudios Económicos.

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