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How trade and macroeconomic policies affect economic growth and capital accumulation in developing countries

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  • Lopez, Ramon

Abstract

The author of this report provides cross-country empirical evidence on the relationship between trade and macroeconomic policy and economic growth. He finds that countries following sustainable strategies perform better than those following unsustainable strategies. Indeed, unsustainable policies hurt growth. Sustainable policies (as in Korea, Taiwan, Singapore, Hong Kong, Thailand, and Malaysia) promote exports and lead to real exchange rates that are either fully aligned or even undervalued for prolonged periods of time but are relatively stable. Unsustainable policies (more common in developing countries) include polices that tax export and overvalue exchange rates for extended periods, leading to periodic balance of payments crises and a highly unstable real exchange rate. The author also finds that: (a) export promotion policies generate faster growth than policies that remove import restrictions; (b) economic instability and foreign debt are key determinants of capital growth; and (c) contrary to conventional belief, capital accumulation appears to be stimulated by direct export restrictions and does not seem to be directly affected by economic instability.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 625.

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Date of creation: 31 Mar 1991
Date of revision:
Handle: RePEc:wbk:wbrwps:625

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Related research

Keywords: Achieving Shared Growth; Environmental Economics&Policies; Economic Growth; Economic Stabilization; Economic Theory&Research;

References

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Dixit, Avinash, 1989. "Intersectoral capital reallocation under price uncertainty," Journal of International Economics, Elsevier, vol. 26(3-4), pages 309-325, May.
  3. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, World Bank Group, vol. 3(1), pages 27-57, January.
  4. Kavoussi, Rostam M., 1984. "Export expansion and economic growth : Further empirical evidence," Journal of Development Economics, Elsevier, vol. 14(1), pages 241-250.
  5. Rodrik, D., 1989. "Liberalization, Substainability, And The Design Of Structural Adjustment Programs," Papers 177d, Harvard - J.F. Kennedy School of Government.
  6. Ram, Rati, 1985. "Exports and Economic Growth: Some Additional Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 415-25, January.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Jeffrey D. Sachs, 1987. "Trade and Exchange Rate Policies in Growth-Oriented Adjustment Programs," NBER Working Papers 2226, National Bureau of Economic Research, Inc.
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Cited by:
  1. Eusuf, M Abu & Ahmed, Mansur, 2007. "Causality between Export and Growth: Evidence from South Asian Countries," MPRA Paper 21027, University Library of Munich, Germany, revised 25 May 2008.
  2. Léonce Ndikumana & Mina Baliamoune-Lutz, 2007. "The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries," UMASS Amherst Economics Working Papers 2007-05, University of Massachusetts Amherst, Department of Economics.

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