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Trade Liberalization and Growth: New Evidence

  • Wacziarg, Romain

    (Stanford U)

  • Welch, Karen Horn

This paper revisits the empirical evidence on the relationship between economic integration and economic growth. First, we present an updated dataset of openness indicators and trade liberalization dates for a wide cross-section of countries in the 1990s. Second, we extend the Sachs andWarner (1995) study of the relationship between trade openness and economic growth to the 1990s, discussing recent criticisms of their measurement and estimation framework. Our results suggest that the cross-sectional findings of Sachs and Warner are sensitive to the period under consideration. In particular, an updated version of their dichotomous trade policy openness indicator does not enter significantly in growth regressions for the 1990s. Third, and most importantly, we present new evidence on the time paths of economic growth, physical capital investment and openness around episodes of trade policy liberalization. In sharp contrast to our cross-sectional results, we find that liberalization has, on average, robust positive effects on growth, openness and investment rates within countries. We illustrate these large sample findings with detailed case studies in a subsample of representative countries.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1826.

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Date of creation: Nov 2003
Date of revision:
Handle: RePEc:ecl:stabus:1826
Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
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  1. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
  2. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2001. "Does Financial Liberalization Spur Growth?," NBER Working Papers 8245, National Bureau of Economic Research, Inc.
  3. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  4. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2002. "An African Success Story: Botswana," CEPR Discussion Papers 3219, C.E.P.R. Discussion Papers.
  5. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  6. Wacziarg, Romain, 1998. "Measuring the dynamic gains from trade," Policy Research Working Paper Series 2001, The World Bank.
  7. Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc.
  8. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
  9. Rodríguez, Francisco & Rodrik, Dani, 1999. "Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence," CEPR Discussion Papers 2143, C.E.P.R. Discussion Papers.
  10. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  11. Dan Ben-David, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 653-679.
  12. repec:oup:qjecon:v:114:y:1999:i:3:p:1025-1045 is not listed on IDEAS
  13. repec:oup:qjecon:v:108:y:1993:i:3:p:653-79 is not listed on IDEAS
  14. Wacziarg, Romain & Seddon, Jessica, 2000. "Trade Liberalization and Intersectoral Labor Movements," Research Papers 1652, Stanford University, Graduate School of Business.
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