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Impact of Openness on Growth in Different Country Groups

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  • Chengang Wang
  • Xiaming Liu
  • Yingqi Wei

Abstract

This paper evaluates the impact of openness on growth in different country groups using a panel of 79 countries over the period 1970–98. It distinguishes itself from many existing studies in three aspects: Firstly, both trade and FDI are included as measures of openness. Secondly, countries are classified into high‐, middle‐ and low‐income groups to compare the roles of trade and FDI in these groups. Thirdly, the possible problems of endogeneity and multicollinearity of trade and FDI are carefully dealt with in a panel data setting. The main findings are as follows. Total trade has a general positive impact on growth in all country groups, although the impact from imports is not significant in high‐income countries. FDI has a positive impact on growth in high‐ and middle‐income countries, but not in low‐income countries. With the existing absorptive capabilities, low‐income countries can benefit from both exports and imports, but not from FDI. These findings suggest that trade and FDI affect growth through different channels and under different conditions. The paper also discusses important policy implications.

Suggested Citation

  • Chengang Wang & Xiaming Liu & Yingqi Wei, 2004. "Impact of Openness on Growth in Different Country Groups," The World Economy, Wiley Blackwell, vol. 27(4), pages 567-585, April.
  • Handle: RePEc:bla:worlde:v:27:y:2004:i:4:p:567-585
    DOI: 10.1111/j.0378-5920.2004.00614.x
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    3. Mustafa, Ghulam & Rizov, Marian & Kernohan, David, 2017. "Growth, human development, and trade: The Asian experience," Economic Modelling, Elsevier, vol. 61(C), pages 93-101.
    4. Mitze, Timo, 2014. "Measuring Regional Spillovers in Long- and Short-Run Models of Total Factor Productivity, Trade, and FDI," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 37(3), pages 365-388.
    5. Iamsiraroj, Sasi & Ulubaşoğlu, Mehmet Ali, 2015. "Foreign direct investment and economic growth: A real relationship or wishful thinking?," Economic Modelling, Elsevier, vol. 51(C), pages 200-213.
    6. Yaya Keho, 2017. "The impact of trade openness on economic growth: The case of Cote d’Ivoire," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1332820-133, January.
    7. Yongkul Won & Frank S.T. Hsiao & Doo Yong Yang, 2008. "FDI Inflows, Exports and Economic Growth in First and Second Generation ANIEs : Panel Data Causality Analyses," Trade Working Papers 21939, East Asian Bureau of Economic Research.
    8. Mariam Camarero & Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann & Cecilio Tamarit, 2016. "Trade Openness and Income: A Tale of Two Regions," The World Economy, Wiley Blackwell, vol. 39(3), pages 386-408, March.
    9. Sovna Mohanty, 2017. "Growth Effects of Economic Globalization: A Cross-Country Analysis," Working Papers id:12092, eSocialSciences.
    10. Timo Mitze, 2012. "Within and Between Panel Cointegration in the German Regional Output–Trade–FDI Nexus," Lecture Notes in Economics and Mathematical Systems, in: Empirical Modelling in Regional Science, edition 127, chapter 0, pages 191-215, Springer.
    11. Shahbaz, Muhammad, 2012. "Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2325-2339.
    12. Salvatore, Dominick, 2023. "A simultaneous equations model of the relationship between international trade, and economic growth and development with dynamic policy simulations," Journal of Policy Modeling, Elsevier, vol. 45(4), pages 789-805.
    13. John H. Dunning & Jeremy Clegg, 2011. "An Enlarged EU, Institutional Challenges and European Competitiveness," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 2, Edward Elgar Publishing.
    14. Hlalefang Khobai & Nwabisa Kolisi & Clement Moyo, 2018. "The Relationship Between Trade Openness and Economic Growth: The Case of Ghana and Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 77-82.
    15. Nickolaos G. Tzeremes, 2019. "Technological change, technological catch-up and export orientation: evidence from Latin American Countries," Journal of Productivity Analysis, Springer, vol. 52(1), pages 85-100, December.
    16. Tekin, Rıfat Barış, 2012. "Economic growth, exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis," Economic Modelling, Elsevier, vol. 29(3), pages 868-878.
    17. Luis Quintana-Romero & Nam Kwon Mun & Roldán Andrés-Rosales & José Álvarez-García, 2020. "Trade Complementarity and the Balance of Payments Constraint Hypothesis: A New Free Trade Agreement between Mexico and South Korea," Mathematics, MDPI, vol. 8(10), pages 1-21, October.
    18. Hsiao, Frank S.T. & Hsiao, Mei-Chu W., 2006. "FDI, exports, and GDP in East and Southeast Asia--Panel data versus time-series causality analyses," Journal of Asian Economics, Elsevier, vol. 17(6), pages 1082-1106, December.
    19. Iti Vyas, 2020. "Whether the Economic Growth of India is Trade Openness Led?," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 8(1), pages 38-53.
    20. Hlalefang Khobai & Clement Moyo, 2021. "Trade openness and industry performance in SADC countries: is the manufacturing sector different?," International Economics and Economic Policy, Springer, vol. 18(1), pages 105-126, February.

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