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The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries

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Baliamoune-Lutz, Mina
Ndikumana, Léonce

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Abstract

In this paper, we explore the argument that one of the causes for the limited growth effects of trade openness in Africa may be the weakness of institutions. We also control for several major factors and, in particular, for export diversification, using a newly developed dataset on Africa. Results from Arellano- Bond GMM estimations on panel data from African countries show that institutions play an important role in enhancing the growth effects of trade. Moreover, we find that the joint effect of institutions and trade has a U-shape, suggesting that as openness to trade reaches high levels, institutions play a critical role in harnessing the trade-led engine of growth. The results from this paper are informative about the missing link between trade liberalization and growth in the case of African countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6189.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6189

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Augustin Kwasi Fosu, 2001. "Economic fluctuations and growth in sub-Saharan Africa: the importance of import instability," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(3), pages 71-84, January. [Downloadable!] (restricted)
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  3. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
  4. Lopez, Ramon, 1991. "How trade and macroeconomic policies affect economic growth and capital accumulation in developing countries," Policy Research Working Paper Series 625, The World Bank. [Downloadable!]
  5. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-73, October.
  6. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August. [Downloadable!] (restricted)
  7. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Thaicharoen, Yunyong, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," CEPR Discussion Papers 3575, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. repec:rus:hseeco:72137 is not listed on IDEAS
  9. Addison, Tony & Baliamoune-Lutz, Mina, 2006. "Economic reform when institutional quality is weak: The case of the Maghreb," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 1029-1043, December. [Downloadable!] (restricted)
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  10. Schneider, Patricia Higino, 2005. "International trade, economic growth and intellectual property rights: A panel data study of developed and developing countries," Journal of Development Economics, Elsevier, vol. 78(2), pages 529-547, December. [Downloadable!] (restricted)
  11. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January. [Downloadable!] (restricted)
  12. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Fundamental," American Economic Review, American Economic Association, vol. 87(2), pages 184-88, May. [Downloadable!] (restricted)
  13. Joshua Lewer & Hendrik Van den Berg, 2003. "Does trade composition influence economic growth? Time series evidence for 28 OECD and developing countries," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 12(1), pages 39-96, March. [Downloadable!] (restricted)
  14. Mazumdar, Joy, 1996. "Do Static Gains from Trade Lead to Medium-Run Growth?," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1328-37, December. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!]
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  17. Guillaumont, Patrick & Jeanneney, Sylviane Guillaumont & Brun, Jean-Francois, 1999. "How Instability Lowers African Growth," Journal of African Economies, Oxford University Press, vol. 8(1), pages 87-107, March.
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(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.)

  1. Léonce Ndikumana & Mina Baliamoune-Lutz, 2008. "Corruption and Growth: Exploring the Investment Channel," Working Papers 2008-08, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
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