Outward-Orientation and Economic Growth in Developing Countries: A Quarter-Century Perspective

Two widely-cited measures of outward orientation are constructed for the 1990s to estimate growth regressions of the kind reported by Dollar (1992) for 1976-1985 and Ram and Yang (1998) for 1985-1990. Indexes of outward orientation and regression estimates are compared for the three periods. Ten points emerge from the study. First, as measured by the index of exchangerate distortion, outward orientation in developing countries increased over the 25-year period 1976-2000. Second, the cross-country dispersion of this measure has tended to decline. Third, in terms of exchange-rate variability, outward orientation shows a slight decline, and its dispersion seems to have increased. Fourth, except for the Middle-East, regional patterns are broadly similar. Fifth, large changes are observed in outward-orientation ranks of many countries across the three periods. Sixth, however, ranks of many countries show a remarkable stability. Seventh, our full-sample estimates for 1991-2000 do not show a signifi cantly negative association of economic growth with either exchange-rate distortion or its variability, and present a marked contrast from those for 1976-1985 and 1986-1990. Eighth, our estimates indicate lack of association between outward-orientation and growth in any of the several subsamples considered by us. Ninth, when we generate a panel by pooling common observations (countries) for the three periods, the most appropriate econometric procedure shows that economic growth has no signifi cant negative association with either measure of outward-orientation in the entire set of pooled observations. Last, our research thus strengthens and extends the skepticism articulated by Rodriguez and Rodrik (2001) in regard to claims made about the empirical support provided by cross-country data for the growth-promoting role of outward-orientation.