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Decoding the Effects of Trade Volume and Trade Policies on Economic Growth: A Cross-Country Investigation

Listed author(s):
  • Dardana Rruka

    (Chatham College)

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    The study investigates the effects of trade volume and trade policies on economic growth. An extension of an earlier study, conducted by Halit Yanikkaya, the study investigates economic growth from cross-section data of 99 countries between 1998 and 2002. The study employs trade measure variables from the Economic Freedom Index, with data from 2000, published by the Fraser Institute as a part of the Economic Freedom of the World: 2002 Report. The study assesses the impact of trade openness, through utilization of the trade openness index, a category of the Economic Freedom Index, which consolidates measures of trade policy and trade volume along with other measures of trade. The study hypothesizes a positive relationship between trade openness and economic growth. Examination is also performed on the isolated effects of trade volume on economic growth, by using the trade sector size index, one component of the trade openness index, and effects of trade policy, by using the international trade taxation index, another component of the trade openness index. A positive relationship between trade openness and economic growth, as well as trade volume and economic growth is hypothesized, while a negative effect of more restrictive trade policies on economic growth is anticipated. Results are derived controlling for input factors relating to economic growth as well as institutional policies. The dependent variable, economic growth, is measured in two ways: (i) through GDP per capita growth rates of 2002; and (ii) the average annual GDP growth rates between 1998 and 2002. In the case of single year GDP per capita growth rates for 2002 the results of the trade variables, both aggregated and separate are found to be statistically insignificant. However, the dependent variable of GDP growth rates spanning over the period 1998- 2002 yields results consistent with those found by Yanikkaya: greater volumes of trade are positively associated with economic growth, but fewer trade restrictions measured as lower trade taxation rates are negatively associated with economic growth.

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    Paper provided by EconWPA in its series International Trade with number 0405003.

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    Length: 85 pages
    Date of creation: 06 May 2004
    Handle: RePEc:wpa:wuwpit:0405003
    Note: Type of Document - pdf; pages: 85
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    1. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-1393, September.
    2. Dan Ben-David, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 653-679.
    3. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, June.
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