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A causal relationship between trade efficiency and economic efficiency: Evidence from dynamic simultaneous equations models

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  • Saeed Rasekhi
  • Zahra Sheidaei
  • Seyed Peyman Asadi

Abstract

The objective of this study is to examine the causal relationship between economic efficiency and trade efficiency using dynamic panel data in simultaneous equations models for global panel of 50 countries over the period 2000–2014. The study also implements this interrelationship for two groups of countries based on their level of development. Two models applying different factors reflecting countries’ economic and trade policies are proposed to measure the targeted efficiencies using data envelopment analysis method. Evidence from the simultaneous equations models to identify a relationship between economic efficiency and trade efficiency supports the bidirectional causality between them in all three categories of countries. It has been also found that both economic and institutional factors have a significant positive influence on trade and growth performance, with the effect of political factors being especially pronounced for developing countries that suffer from weak institutional capacity. These empirical findings are of particular interest to policy-makers as they help to build sound policies in order to maximize trade performance as well as economic efficiency.

Suggested Citation

  • Saeed Rasekhi & Zahra Sheidaei & Seyed Peyman Asadi, 2017. "A causal relationship between trade efficiency and economic efficiency: Evidence from dynamic simultaneous equations models," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(4), pages 473-487, May.
    • Handle: RePEc:taf:jitecd:v:26:y:2017:i:4:p:473-487
    DOI: 10.1080/09638199.2016.1267788
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    1. T. N. Srinivasan & Jagdish Bhagwati, 2001. "Outward-Orientation and Development: Are Revisionists Right?," Palgrave Macmillan Books, in: Deepak Lal & Richard H. Snape (ed.), Trade, Development and Political Economy, chapter 1, pages 3-26, Palgrave Macmillan.
    2. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
    3. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, December.
    4. Gene M. Grossman (ed.), 1992. "Imperfect Competition and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570939, December.
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    Cited by:

    1. Khanindra Ch. Das & Mantu Kumar Mahalik, 2021. "Assessment of Overseas Subsidiary Survival in Chinese Provinces: A Longitudinal Study of Indian Multinationals," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(2), pages 190-207, June.
    2. Zwane, Talent & Biyase, Mduduzi & Maleka, Mokgadi & Maluleka, Abelwe, 2020. "Technical Efficiency and Economic Growth in the SADC Region," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 307-324.

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