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Openness and human capital as sources of productivity growth: An empirical investigation

  • Måns Söderbom
  • Francis Teal

Do openness to trade and higher levels of human capital promote faster productivity growth? That they do is a key implication of several versions of endogenous growth theory. To answer the question we use panel data on 93 countries spanning the 1970-2000 period. Controlling for fixed effects as well as endogeneity, the results show a significant effect of openness on productivity growth. If the level of openness of an economy is doubled the underlying rate of technical progress will increase by 0.8 per cent per annum. We find an effect, significant at the ten per cent level, of the level of human capital on the level of income but no effect on underlying productivity growth. Our preferred estimator combines high and low frequency differences of the data. We discuss reasons why this estimator is well suited for empirical analysis of economic growth.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2003-06.

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Date of creation: 2003
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Handle: RePEc:csa:wpaper:2003-06
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