Rethinking the Impact of Trade Openness on Global Economic Productivity: A Cross-Country Analysis

This study investigates the relationship between trade openness and economic productivity across 147 countries using World Bank data. We construct novel proxy measures for productivity by normalizing each country’s GDP relative to global totals. To estimate the causal effect of openness on productivity, we use the number of trade partners as an instrument for openness, controlling for regional and income-level factors. Our regression analysis reveals no significant relationship between trade openness and economic performance over the last two decades, challenging the conventional belief that increased trade liberalization drives economic growth. These findings suggest a more complex dynamic at play and underscore the need for further research to better understand the intricate link between openness and productivity, with important implications for policy design and global economic strategy.