Export specialization, trade liberalization and economic growth: a synthetic control analysis

Using panel data on small, open economies, this paper analyses the effect of trade liberalization on economic growth, placing a particular focus on the mechanisms that can potentially explain the estimated effects. I categorize the countries into four different sub-groups based on their predominant exports (agriculture, manufacturing, mining, and services), to identify the subgroup of countries that have benefitted the most from trade liberalization. Based on the comparative case studies employed using the synthetic control method, it is evident that the sub-group of countries with a primary focus on manufacturing exports have experienced the highest benefits overall from trade liberalization. Resource-rich economies appear to have benefitted least from opening their economy. Findings also suggest that the group of countries that have performed well (i.e. manufacturing-oriented countries) also experience significant increases in manufacturing exports post-liberalization. Results remain robust to various tests employed.