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Productivity, Trade, and Institutional Quality: A Panel Analysis


  • Eleanor Doyle

    () (Institute for Business Development and Competitiveness, Department of Economics, University College Cork, College Road, Cork, Ireland)

  • Inmaculada Martinez-Zarzoso

    () (Department of Economics, Georg-August Universitat Gottingen, Platz der Gottinger Sieben 3, Gottingen 37073, Germany and Departamento de Economia and Instituto de Economia Internacional, Universidad Jaume I, 12080 Castellon, Spain)


Recognizing that gains historically attributed to trade capture instead the roles of institutions and geography, we estimate the relationship between labor productivity and trade for a panel of countries, 1980 to 2000. We use real and nominal openness as measures of trade. The endogeneity of trade and institutional quality is accounted for with instruments. Our trade instrument is based on a theoretically motivated gravity equation and uses a more comprehensive data set than in related studies. Fixed- and random-effects and system-GMM panel estimation methods address potential biases associated with cross-section estimations. We find a robust relationship between real openness and labor productivity from the 1990s. Countries that trade more generate higher levels of productivity, supporting an institutional theory of growth. We find evidence that countries with low-quality institutions benefit from openness to trade and that the positive effect of trade on labor productivity is lower for more populated countries.

Suggested Citation

  • Eleanor Doyle & Inmaculada Martinez-Zarzoso, 2011. "Productivity, Trade, and Institutional Quality: A Panel Analysis," Southern Economic Journal, Southern Economic Association, vol. 77(3), pages 726-752, January.
  • Handle: RePEc:sej:ancoec:v:77:3:y:2011:p:726-752

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    Cited by:

    1. 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.
    2. Herzer, Dierk, 2013. "Cross-Country Heterogeneity and the Trade-Income Relationship," World Development, Elsevier, vol. 44(C), pages 194-211.
    3. Inma Martínez-Zarzoso & Leila Baghdadi & Hendrik Wiard Kruse, 2016. "Is Tunisian Trade Policy Pro-Poor?," Working Papers 1033, Economic Research Forum, revised Aug 2016.
    4. Doyle, Eleanor & O’Connor, Fergal, 2013. "Innovation capacities in advanced economies: Relative performance of small open economies," Research in International Business and Finance, Elsevier, vol. 27(1), pages 106-123.
    5. Martínez-Zarzoso, Inmaculada & Oueslati, Walid, 2016. "Are deep and comprehensive regional trade agreements helping to reduce air pollution?," Center for European, Governance and Economic Development Research Discussion Papers 292, University of Goettingen, Department of Economics.
    6. Horsewood, Nicholas & Voicu, Anca Monika, 2012. "Does corruption hinder trade for the new EU members?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-28.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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