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Trade Liberalization and Growth: New Evidence

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  • Romain Wacziarg
  • Karen Horn Welch

Abstract

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 and Warner (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.

Suggested Citation

  • Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10152
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    1. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, April.
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    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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