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Trade and Growth in East Asian Countries: Cause and Effect?

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  • Jeffrey A. Frankel
  • David Romer
  • Teresa Cyrus

Abstract

Estimates of growth equations have found a role for openness, particularly in explaining rapid growth among East Asian countries. But major concerns of simultaneous causality between growth and trade have been expressed. This study aims to deal with the endogeneity of trade by using as instrumental variables the exogenous determinants from the gravity model of bilateral trade, such as proximity to trading partners. We find that the effect of openness on growth is even stronger when we correct for the endogeneity of openness than in standard OLS estimates. We conclude with estimates of how much has been contributed to East Asian growth both by the exogenous or geographical component of openness and by the residual or policy component.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5732.

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Date of creation: Aug 1996
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Handle: RePEc:nbr:nberwo:5732

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