Trade openness, growth, and informality: Panel VAR evidence from OECD economies
This paper analyzes empirically the linkages between trade openness, economic growth, and the size of the informal economy. I employ panel VAR techniques in a quarterly panel data set composed of 12 advanced economies over the period from 1964:1 to 2010:4 allowing bi-directional interaction between the variables in the system in order to address the endogeneity problem. The results provide evidence that there is a positive bi-directional relationship between GDP growth and trade openness. Second, fluctuations of GDP growth are explained by the size of the informal economy, while the impact of GDP growth on the size of the informal economy is not found to be robust with respect to change in VAR order. Moreover, the size of the informal economy affects GDP growth more than openness, and the causality from openness to GDP growth is slightly stronger than the causality from GDP growth to openness. Finally, there is no conclusive, robust evidence regarding the interaction between the size of the informal economy and trade openness.
Volume (Year): 33 (2013)
Issue (Month): 1 ()
|Contact details of provider:|| |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
- Kaddour Hadri, 1999.
"Testing For Stationarity In Heterogeneous Panel Data,"
1999_04, University of Liverpool Management School.
- Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
- Pinelopi K. Goldberg & Nina Pavcnik, 2003.
"The Response of the Informal Sector to Trade Liberalization,"
NBER Working Papers
9443, National Bureau of Economic Research, Inc.
- Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
- Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "The Response of the Informal Sector to Trade Liberalization," CEPR Discussion Papers 3874, C.E.P.R. Discussion Papers.
- Sebastian Edwards, 1997.
"Openness, Productivity and Growth: What Do We Really Know?,"
NBER Working Papers
5978, National Bureau of Economic Research, Inc.
- Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-98, March.
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Awokuse, Titus O., 2007. "Causality between exports, imports, and economic growth: Evidence from transition economies," Economics Letters, Elsevier, vol. 94(3), pages 389-395, March.
- Sarkar, Prabirjit, 2007. "Trade Openness and Growth: Is There Any Link?," MPRA Paper 4997, University Library of Munich, Germany.
- Jung, Woo S. & Marshall, Peyton J., 1985. "Exports, growth and causality in developing countries," Journal of Development Economics, Elsevier, vol. 18(1), pages 1-12.
- Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer, vol. 19(1), pages 139-171, February.
- Marco Fugazza & Norbert Fiess, 2010.
"Trade Liberalization And Informality: New Stylized Facts,"
UNCTAD Blue Series Papers
43, United Nations Conference on Trade and Development.
- Norbert Fiess & Marco Fugazza, 2008. "Trade Liberalisation and Informality: New stylized facts," Working Papers 2008_34, Business School - Economics, University of Glasgow.
- Rodríguez, Francisco & Rodrik, Dani, 1999.
"Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence,"
CEPR Discussion Papers
2143, C.E.P.R. Discussion Papers.
- Francisco Rodriguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338 National Bureau of Economic Research, Inc.
- Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: a Skeptic's Guide to the Cross-National Evidence," Working Papers 9912, Economic Research Forum, revised Apr 1999.
- 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.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
- Ceyhun Elgin & Oguz Oztunali, 2012. "Shadow Economies around the World: Model Based Estimates," Working Papers 2012/05, Bogazici University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-13-00032. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley)
If references are entirely missing, you can add them using this form.