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Measuring the dynamic gains from trade

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Author Info
Wacziarg, Romain

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Abstract

The author investigates the links between trade policy and economic growth using data from a panel of 57 countries from 1970-89. This is the first attempt to empirically evaluate, in a cross-country context, the respective roles of various theories of dynamic gains from trade in explaining the observed positive impact of trade openness on economic growth. The author uses a new measure of trade openness, based on the effective policy component of trade shares, in a simultaneous equations system aimed at identifying the effect of trade policy on several determinants of growth. The results suggest that a policy of trade openness has a strong positive impact on economic growth. The accelerated accumulation of physical capital accounts for more than half this effect. Enhanced technological transmissions and improvements in the quality of macroeconomic policy each account for about 20 percent of the impact of trade openness on growth. This decomposition is robust to alternative specifications and time periods. The author also successfully tests whether the empirical methodology captures all or most of the effects of trade policy on growth. The lack of statistically significant results concerning several other channels may be due to measurement problems. The black market premium may be a weak proxy for the efficiency of the price system. Moreover, international technological transmissions are very hard to measure, so there may be a downward bias in the estimates based on the manufactured exports channel, and a corresponding overstatement of other channels.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2001.

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Date of creation: 30 Nov 1998
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Handle: RePEc:wbk:wbrwps:2001

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Keywords: Rules of Origin; Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Trade Policy; Economic Theory&Research; Environmental Economics&Policies; Achieving Shared Growth; Trade Policy; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;

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  3. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May. [Downloadable!] (restricted)
  4. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August. [Downloadable!] (restricted)
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  6. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank. [Downloadable!]
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  8. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September. [Downloadable!] (restricted)
  9. Wacziarg, Romain, 1998. "Measuring the dynamic gains from trade," Policy Research Working Paper Series 2001, The World Bank. [Downloadable!]
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  10. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October. [Downloadable!] (restricted)
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  18. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
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  20. Alberto Alesina & Romain Wacziarg, 1997. "Openness, Country Size and the Government," NBER Working Papers 6024, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
  24. Brian J. Aitken & Ann E. Harrison, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June. [Downloadable!] (restricted)
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  26. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  28. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May. [Downloadable!] (restricted)
  29. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May. [Downloadable!] (restricted)
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  30. 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. [Downloadable!] (restricted)
  31. Alberto Alesina & Enrico Spolaore & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December. [Downloadable!] (restricted)
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  32. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
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  33. Alberto F. Ades & Edward L. Glaeser, 1999. "Evidence On Growth, Increasing Returns, And The Extent Of The Market," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 1025-1045, August. [Downloadable!] (restricted)
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  34. Barro, Robert J & Sala-i-Martin, Xavier, 1997. " Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March. [Downloadable!] (restricted)
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  35. Ann Harrison & Ana Revenga, 1995. "The Effects of Trade Policy Reform: What Do We Really Know?," NBER Working Papers 5225, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  36. 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.
  37. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July. [Downloadable!] (restricted)
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  38. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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