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External Conditions and Growth Performance

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  • César Calderón
  • Norman Loayza
  • Klaus Schmidt-Hebbel

Abstract

This paper provides an empirical evaluation of the influence of external conditions and international integration on growth performance, using panel methods for a large cross-country data set. Controlling for domestic conditions, the paper examines the growth effects of trade and financial integration as well as four types of foreign shocks: terms of trade changes, trading partners' GDP growth, changes in international real interest rates, and net regional capital inflows. We analyze the possibility of nonlinearities by allowing the growth effects of openness to vary with the general level of economic development and by letting the effects of foreign shocks to depend on the degree of trade and financial integration. The findings point toward non-monotonic effects of openness, in the sense that the growth effects of trade and financial openness increase with the level of development, tapering off for high levels of income. In addition, the paper finds that trade openness tends to dampen the growth effect of trade-related shocks while amplifying the shocks related to financial markets. Interestingly, financial openness tends to have the opposite effect.

Suggested Citation

  • César Calderón & Norman Loayza & Klaus Schmidt-Hebbel, 2004. "External Conditions and Growth Performance," Working Papers Central Bank of Chile 292, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:292
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    Cited by:

    1. Yunyong Thaicharoen & Sra Chuenchoksan & Ashvin Ahuja, 2007. "Big elephants in small ponds: Risk absorption, risk diversification and management of capital flows," Working Papers 2007-02, Monetary Policy Group, Bank of Thailand.
    2. Chang, Roberto & Kaltani, Linda & Loayza, Norman V., 2009. "Openness can be good for growth: The role of policy complementarities," Journal of Development Economics, Elsevier, vol. 90(1), pages 33-49, September.
    3. Klaus Schmidt-Hebbel, 2010. "Macroeconomic Regimes, Policies and Outcomes in the World," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 161-187, December.
    4. Klaus Schmidt-Hebbel, 2006. "Chile's Economic Growth," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 5-48.
    5. Vittorio Corbo & Klaus Schmidt-Hebbel, 2011. "The International Crisis and Latin America: Growth Effects and Development Strategies," CASE Network Studies and Analyses 429, CASE-Center for Social and Economic Research.
    6. Faleiros, João Paulo Martin & Alves, Denisard Cneio de Oliveira, 2014. "Especialização Setorial do Comércio Internacional Condiciona o Impacto da Abertura Comercial Sobre a Renda?," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 68(4), October.

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