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Trade Orientation, Distortions and Growth in Developing Countries

  • Sebastian Edwards

In this paper I use a cross country data set to analyze the relationship between trade orientation, trade distortions and growth. I first develop a simple endogenous growth model that emphasizes the process of technological absorption in small developing countries. According to this model countries that liberalize their international trade and become more open will tend to grow faster. Whether this higher growth is permanent, or only a short run result, will depend on the relative size of some key parameters. using nine alternative indicators of trade orientation I find out that the data supports the view that more open economies tend to grow faster than economies with trade distortions. The results are robust to the method of estimation, to correction for errors in variables and for the deletion of outliers. I finally argue that future research in the area should move towards the empirical investigation of the microeconomics of technological innovations and growth.

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File URL: http://www.nber.org/papers/w3716.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3716.

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Date of creation: May 1991
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Publication status: published as "The Political Economy of Inflation and Stabilization in Developing Countries," Economic Development and Cultural Change, January 1994, 42(2): 235-266
Handle: RePEc:nbr:nberwo:3716
Note: ITI IFM
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  1. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S126-50, October.
  2. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, 07.
  3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  4. Susan M. Collins & Won Am Park, 1988. "External Debt and Macroeconomic Performance in South Korea," NBER Working Papers 2596, National Bureau of Economic Research, Inc.
  5. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-44, April.
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