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Trade, Productivity and Institutional Quality: Issues and Empirics

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  • Martínez-Zarzoso, Inmaculada
  • Doyle, Eleanor

Abstract

We estimate the relationship between productivity and trade for a panel of countries over the period 1980 to 2000 using instrumental-variables estimation of a productivity equation. We note that some estimates of productivity gains attributed to trade capture instead the roles of institutions and geography. The endogeneity of trade and institutional quality is accounted for by using instruments. We extend the Frankel and Romer (1999) specification, using real openness to measure trade (following Alcala and Ciccone, 2004), which allows for identification of channels through which trade and production scale affect productivity. The trade instrument is based on a ?theoretically motivated? gravity equation. The instruments for institutional quality come from Gwartney, Holcombe and Lawson (2004). Contrary to Alcala and Ciccone, our results suggest no robust relationship between real openness and labour productivity in the 1980s. Conversely, the relationship between productivity and real openness appears to be robust from 1990 onwards and similarly in the case of institutional quality. We also find evidence implying that countries with low-quality institutions are also able to benefit from openness to trade. --

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Göttingen 2007 with number 21.

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Date of creation: 2007
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Handle: RePEc:zbw:gdec07:6544

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  1. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  2. Francisco Alcalá & Antonio Ciccone, 2003. "Trade and Productivity," Working Papers 12, Barcelona Graduate School of Economics.
  3. Stephen Redding, 2002. "Specialization dynamics," LSE Research Online Documents on Economics 210, London School of Economics and Political Science, LSE Library.
  4. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  5. 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.
  6. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, vol. 72(1), pages 57-89, October.
  7. Lewis, Arthur, 1979. "The Slowing Down of the Engine of Growth," Nobel Prize in Economics documents 1979-2, Nobel Prize Committee.
  8. Kunst, Robert M. & Marin, Dalia, 1989. "On Exports and Productivity: A Causal Analysis," Munich Reprints in Economics 3113, University of Munich, Department of Economics.
  9. Connolly, Michelle, 2003. "The dual nature of trade: measuring its impact on imitation and growth," Journal of Development Economics, Elsevier, vol. 72(1), pages 31-55, October.
  10. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  11. Douglas A. Irwin & Marko Tervio, 2000. "Does Trade Raise Income? Evidence from the Twentieth Century," NBER Working Papers 7745, National Bureau of Economic Research, Inc.
  12. Axel Borrmann & Matthias Busse & Silke Neuhaus, 2006. "Institutional Quality and the Gains from Trade," Kyklos, Wiley Blackwell, vol. 59(3), pages 345-368, 08.
  13. James D. Gwartney & Randall G. Holcombe & Robert A. Lawson, 2004. "Economic Freedom, Institutional Quality,and Cross-Country Differences in Income and Growth," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 205-233, Fall.
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