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Beyond Institutionalism: There Lies a Good Set of Trade Policies

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  • Mamoon, Dawood
  • Murshed, S. Mansoob

Abstract

The purpose of this paper is to empirically examine the contribution of trade liberalisation to differences in the level of prosperity across nations. We compare this with the relative contribution of institutional capacity to prosperity, as well as the role of human capital accumulation in that respect. We employ several concepts of institutional quality, trade policy and openness variables following various definitions prevalent in the literature. Unlike in the comparable study by Rodrik et al (2004) we have (a) included a role for human capital, (b) employed six institutional variables compared to one only in Rodrik et al (rule of law), (c) included trade policy variables, and not just openness indicators and (d) expanded the set of openness measures employed. We discover that opening up domestic markets to foreign competition by removing trade restrictions and barriers may be good for economic performance. Secondly, developing human capital is as important as superior institutional functioning for economic wellbeing. We find that openness counts for little per se in explaining income differences across countries. This is because it is an outcome and not a cause. Trade policies, and liberalisation, on the other hand, are not insignificant in explaining cross-country per-capita income variation. With regard to trade policies, export taxes are the most important in explaining cross-country per-capita income differences.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29532.

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Date of creation: Mar 2011
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Handle: RePEc:pra:mprapa:29532

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Keywords: Economic Growth; Institutions; International Trade;

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  1. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  2. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  3. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  4. Rose, Andrew K., 2004. "Do WTO members have more liberal trade policy?," Journal of International Economics, Elsevier, vol. 63(2), pages 209-235, July.
  5. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, 09.
  6. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: a Skeptic's Guide to the Cross-National Evidence," Working Papers 9912, Economic Research Forum, revised Apr 1999.
  7. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
  8. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
  9. Rodrik, Dani, 2004. "Globalization and growth -- looking in the wrong places," Journal of Policy Modeling, Elsevier, vol. 26(4), pages 513-517, June.
  10. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
  11. 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.
  12. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  13. Greenaway, David & Morgan, Wyn & Wright, Peter, 2002. "Trade liberalisation and growth in developing countries," Journal of Development Economics, Elsevier, vol. 67(1), pages 229-244, February.
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Cited by:
  1. Yazdani, Naveed & Mamoon, Dawood, 2012. "The economics and philosophy of globalization," MPRA Paper 36091, University Library of Munich, Germany.

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