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Trade and growth in East Asian countries: cause and effect?

  • Jeffrey A. Frankel
  • David Romer
  • Teresa Cyrus

Estimates of growth equations have found a role for openness, particularly in explaining rapid growth among East Asian countries. But major concerns of simultaneous causality between growth and trade have been expressed. This study aims to deal with the endogeneity of trade by using as instrumental variables the exogenous determinants from the gravity model of bilateral trade, such as proximity to trading partners. Our preliminary finding is that the effect of openness on growth is even clearer when we correct for the endogeneity of openness than in standard OLS estimates. We conclude with estimates of how much has been contributed to East Asian growth by openness (both the exogenous or geographical component of openness and the residual or policy component).

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Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 95-03.

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Date of creation: 1995
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Publication status: Published in NBER Working Paper : 5732
Handle: RePEc:fip:fedfpb:95-03
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