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Openness, Specialization, and Productivity Growth in Less Developed Countries

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Diana Weinhold
James Rauch

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Abstract

Many empirical studies have found a positive relationship between openness and growth in per capita GDP in less developed countries, and economists have produced many explanations for this correlation. However, the existing studies are consistent with all of these theories and thus do not provide direct evidence in support of any one of them. Quah and Rauch [18] show how increased openness to international trade can lead to increased specialization in models of endogenous growth through learning by doing. These models imply that increased specialization accelerates productivity growth by more fully realizing dynamic economies of scale. In order to test the hypothesis that specialization increases productivity growth in LDCs we first define a Herfindahl index of production specialization for the manufacturing sector in 39 countries. We then present a series of dynamic panel regressions controlling for country fixed effects which show that, for the less developed countries, the index of specialization is positively and significantly correlated with manufacturing productivity growth. We test the robustness of this correlation by including different variables that have been associated with growth in the regressions, such as openness, inflation, government spending, and investment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6131.

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Date of creation: Aug 1997
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Handle: RePEc:nbr:nberwo:6131

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Find related papers by JEL classification:
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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  1. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January. [Downloadable!] (restricted)
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  1. George Petrakos & Dimitrios Kallioras & Ageliki Anagnostou, 2006. "Determinants of Industrial Performance in the EU-15 Countries, 1980-2003," ERSA conference papers ersa06p134, European Regional Science Association. [Downloadable!]
  2. Antoni Estevadeordal & Christian Volpe Martincus, 2006. "Specialization and Diverging Manufacturing Structures: The Aftermath of Trade Policy Reforms in Developing Countries," Development Working Papers 220, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
  3. Thomas E. Borcherding & J. Stephen Ferris & Andrea Garzoni, 2001. "Growth in the Real Size of Government Since 1970," Carleton Economic Papers 01-06, Carleton University, Department of Economics. [Downloadable!]
    Other versions:
  4. Wong Tsen, 2006. "Granger causality tests among openness to international trade, human capital accumulation and economic growth in China: 1952--1999," International Economic Journal, Korean International Economic Association, vol. 20(3), pages 285-302, September. [Downloadable!] (restricted)
  5. Muendler, Marc Andreas, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Francisco Alcalá & Antonio Ciccone, 2001. "Trade and Productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002. [Downloadable!]
    Other versions:
  7. Mustafa Akal, 2006. "Causalities Among Growth Related Policy Variables In Turkey, 1950-2004," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3). [Downloadable!] (restricted)
  8. Erzan, Refik & Filiztekin, Alpay & Zenginobuz, Unal, 2002. "Turkey’s Customs Union with the European Union: A Framework for Evaluating the Impact of Economic Integration," MPRA Paper 382, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  9. Poh-Kam Wong & Annette Singh, 2005. "Technological Specialization and Convergence of Small Countries: The Case of the Late-industrializing Asian NIEs," Development and Comp Systems 0505011, EconWPA. [Downloadable!]
  10. George Petrakos & Georgios Fotopoulos & Dimitrios Kallioras, 2006. "Peripherality and Integration: Industrial Growth and Decline in the Greek Regions," ERSA conference papers ersa06p133, European Regional Science Association. [Downloadable!]
  11. Sangho KIM & Hyunjoon LIM & Donghyun PARK, 2007. "The Effect of Imports and Exports on Total Factor Productivity in Korea," Discussion papers 07022, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  12. Isabelle Bensidoun & Guillaume Gaulier & Deniz Unal-Kesenci, 2001. "The Nature of Specialization Matters for Growth: an Empirical Investigation," Working Papers 2001-13, CEPII research center. [Downloadable!]
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