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External Conditions and Growth Performance

  • César Calderón
  • Norman Loayza
  • Klaus Schmidt-Hebbel

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.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 292.

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Date of creation: Dec 2004
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Handle: RePEc:chb:bcchwp:292
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  24. Michael W. Klein, 2003. "Capital Account Openness and the Varieties of Growth Experience," NBER Working Papers 9500, National Bureau of Economic Research, Inc.
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