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Trade, regulations, and growth

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Author Info
Bolaky, Bineswaree
Freund, Caroline

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Abstract

Trade does not stimulate growth in economies with excessive business and labor regulations. The authors examine the effect of openness on growth using cross-country regressions in both levels and changes. Results from the levels regressions imply that increased openness is associated with a lower standard of living in heavily-regulated economies. Growth regressions confirm that the effect of increased trade on growth is absent in these countries. The authors also find that once they control for the effect of trade on growth in heavily regulated economies, the evidence that trade positively affects growth is stronger than has been found in previous studies. Excessive regulations restrict growth because resources are prevented from moving into the most productive sectors and to the most efficient firms following liberalization. In addition, in highly regulated economies, increased trade is more likely to occur in the wrong goods-that is, goods where comparative advantage does not lie. The results imply that countries must create a sound business environment before trade can be used as an engine of growth.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3255.

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Date of creation: 01 Apr 2004
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Handle: RePEc:wbk:wbrwps:3255

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Keywords: Public Health Promotion; Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Health Monitoring&Evaluation; Environmental Economics&Policies; Economic Theory&Research; Governance Indicators; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Achieving Shared Growth;

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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. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 1-118. [Downloadable!]
  3. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July. [Downloadable!] (restricted)
  4. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August. [Downloadable!] (restricted)
  5. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December. [Downloadable!] (restricted)
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  6. John Shea, 1996. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," NBER Technical Working Papers 0193, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Redding, Stephen, 2002. "Specialization dynamics," Journal of International Economics, Elsevier, vol. 58(2), pages 299-334, December. [Downloadable!] (restricted)
  8. 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)
  9. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February. [Downloadable!] (restricted)
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  11. Klapper, Leora & Laeven, Luc & Rajan, Raghuram G, 2004. "Business Environment and Firm Entry: Evidence from International Data," CEPR Discussion Papers 4366, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Raymond Fisman & Virginia Sarria-Allende, 2004. "Regulation of Entry and the Distortion of Industrial Organization," NBER Working Papers 10929, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Andrew B. Bernard & J. Bradford Jensen, 1999. "Exporting and Productivity," NBER Working Papers 7135, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Olivier Blanchard & Pedro Portugal, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March. [Downloadable!] (restricted)
  15. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers 3095, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  16. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 245-76, January.
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  17. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth : revisiting the evidence," Policy Research Working Paper Series 3004, The World Bank. [Downloadable!]
  18. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2002. "Regulation and Investment," Boston College Working Papers in Economics 549, Boston College Department of Economics. [Downloadable!]
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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. Grossmann, Volker, 2008. "Entrepreneurial Innovation and Sustained Long-Run Growth without Weak or Strong Scale Effects," IZA Discussion Papers 3389, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Chang, Roberto & Kaltani, Linda & Loayza, Norman, 2005. "Openness can be good for growth : the role of policy complementarities," Policy Research Working Paper Series 3763, The World Bank. [Downloadable!]
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  3. Dennis, Allen, 2006. "Trade liberalization, factor market flexibility, and growth : the case of Morocco and Tunisia," Policy Research Working Paper Series 3857, The World Bank. [Downloadable!]
  4. Francois, Joseph & Manchin, Miriam, 2007. "Institutions, infrastructure, and trade," Policy Research Working Paper Series 4152, The World Bank. [Downloadable!]
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  5. Busse, Matthias & Groizard, Jose Luis, 2006. "Foreign direct investment, regulations, and growth," Policy Research Working Paper Series 3882, The World Bank. [Downloadable!]
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  6. Emma Aisbett, 2005. "Why are the Critics so Convinced that Globalization is Bad for the Poor?," NBER Working Papers 11066, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Hoekman & Bernard & Winters, L. Alan, 2005. "Trade and employment : stylized facts and research findings," Policy Research Working Paper Series 3676, The World Bank. [Downloadable!]
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  8. Raphael Bergoeing & Norman Loayza & Andrea Repetto, 2004. "Slow Recoveries," Documentos de Trabajo 188, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
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  9. Loayza, Norman V. & Oviedo, Ana Maria & Serven, Luis, 2005. "Regulation and macroeconomic performance," Policy Research Working Paper Series 3469, The World Bank. [Downloadable!]
  10. Ann Harrison & Margaret McMillan, 2007. "On the links between globalization and poverty," Journal of Economic Inequality, Springer, vol. 5(1), pages 123-134, April. [Downloadable!] (restricted)
  11. Salinas, Gonzalo & Aksoy, Ataman, 2006. "Growth before and after trade liberalization," Policy Research Working Paper Series 4062, The World Bank. [Downloadable!]
  12. John Romalis, 2007. "Market Access, Openness and Growth," NBER Working Papers 13048, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Amin, Mohammad & Mattoo, Aaditya, 2006. "Do institutions matter more for services ?," Policy Research Working Paper Series 4032, The World Bank. [Downloadable!]
  14. Hoekman, Bernard & Smarzynska Javorcik, Beata, 2004. "Policies facilitating firm adjustment to globalization," Policy Research Working Paper Series 3441, The World Bank. [Downloadable!]
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  15. Busse, Matthias & Groizard, José Luis, 2006. "FDI, Regulations and Growth," Proceedings of the German Development Economics Conference, Berlin 2006 6, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
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