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Growth before and after trade liberalization

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  • Salinas, Gonzalo
  • Aksoy, Ataman

Abstract

The empirical study of the impact of trade liberalization has not convinced the skeptics about the economic gains after trade reforms. Some have even argued that trade reforms have led to economic collapse and to deindustrialization. Using a sample that excludes countries that were subject to major exogenous disruptions, the authors note that post-reform economic growth was 1.2 percentage points higher than before the reforms. This is remarkable considering that pre-reform periods were characterized by highly expansionary state policies and large external borrowing, and the crisis years that preceded trade liberalization in the comparisons are eliminated. Through multivariate fixed effects estimations the authors calculate that annual per capita GDP growth rates increased by up to 2.6 percentage points after the trade reforms, compared to a counterfactual that takes into consideration the evolution of several growth determinants. Moreover, trade liberalization has been followed by an acceleration of growth in investment, exports of goods and services, and manufacturing exports, and as opposed to common belief, outward orientation did not lead to significant deindustrialization and actually seems to have increased export diversification. Growth acceleration occurred irrespective of income per capita level and was quite significant in Sub-Saharan Africa. As expected, small countries benefited most from the reforms.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4062.

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Date of creation: 01 Nov 2006
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Handle: RePEc:wbk:wbrwps:4062

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Keywords: Economic Theory&Research; Free Trade; Achieving Shared Growth; Trade Law; Trade Policy;

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References

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Citations

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Cited by:
  1. Ulaşan, Bülent, 2012. "Openness to international trade and economic growth: A cross-country empirical investigation," Economics Discussion Papers 2012-25, Kiel Institute for the World Economy.
  2. Falvey, Rod & Foster, Neil & Greenaway, David, 2012. "Trade Liberalization, Economic Crises, and Growth," World Development, Elsevier, vol. 40(11), pages 2177-2193.
  3. Łukasz Goczek, 2011. "International Openness and Social Development as Endogenous Determinants of Growth," Working Papers 2011-22, Faculty of Economic Sciences, University of Warsaw.
  4. Anonymous, 2012. "Journal of International Agricultural Trade and Development, Volume 8, Issue 2," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 8(2).
  5. Mayasa Mkubwa Hamad & Burhan Ahmad Mtengwa & Stabua Abdul Babiker, 2014. "The Impact of Trade Liberalization on Economic Growth in Tanzania," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(5), pages 514-532, May.
  6. Daniel Sakyi & Jose Villaverde & Adolfo Maza & Krishna Reddy Chittedieonardo, 2012. "Trade Openness, Growth and Development: Evidence from Heterogeneous Panel Cointegration Analysis for Middle-Income Countries," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
  7. Macar Stoianov, 2008. "The impact of the trade and financial openness on the economic growth in the countries from the Eastern Europe," Advances in Economic and Financial Research - DOFIN Working Paper Series 14, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.

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