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The empirics of trade and growth: where are the policy recommendations?

  • Klaus Wälde
  • Christina Wood

Existing literature repeatedly documented a strong correlation between trade and growth. It has also shown a causal effect of imports (though not necessarily exports) on growth in simultaneous equation models but to a lesser extent in Granger-causality tests. Export and import taxes have sometimes been found to negatively affect growth. Drawing policy conclusions from these general findings for a particular country is difficult not only because of the contradictory results but also because of potential second best world effects and the implied endogeneity of trade policy. Policy recommendations for a specific country require a careful analysis of market and institutional arrangements and can not be based on the existing cross-country literature.

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers 2008 - 2015 with number 204.

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Length: 19 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:euf:ecopap:0204
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