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Trade and productivity

We estimate the effect of international trade on average labor productivity at the country level. Our empirical approach relies on summary measures of trade that, we argue, are preferable on both theoretical and empirical grounds to the one conventionally used. In contrast to the marginally significant and non-robust effects of trade on productivity found previously, our estimates are highly significant and robust even when we include institutional quality and geographic factors in the empirical analysis. We also examine the channels through which trade and institutional quality affect average labor productivity. Our finding is that trade works through labor efficiency, while institutional quality works through physical and human capital accumulation. We conclude with an exploratory analysis of the role of trade policies for average labor productivity.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/580.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 580.

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Date of creation: Oct 2001
Date of revision: Jul 2002
Handle: RePEc:upf:upfgen:580
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. James E. Rauch & Diana Weinhold, 1999. "Openness, Specialization, and Productivity Growth in Less Developed Countries," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 1009-1027, August.
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