Does International Trade Cause Economic Growth? A Survey

Abstract

This study surveys the literature on the relationship between international trade and economic growth, and succinctly reviews the role of GATT/WTO in fostering free trade. Most studies support the gains of trade and recognise the substantive contributions of GATT/WTO in fostering free trade; the evidence is, however, not ubiquitously unambiguous. The macroeconomic evidence provides a dominant support for the positive and significant effects of trade on output and growth, while the microeconomic evidence lends larger support to the exogenous effects of productivity on trade, as compared to the effects of trade on productivity. The GATT/WTO remains surrounded by barriers to trade and avowed preferences for preferential trade agreements. The strength of the argument for the gains of trade needs to be evaluated in juxtaposition with several methodological and measurement issues that surround the trade-growth empirics. Most studies focus on partial equilibrium analysis of trade policy and ignore the general equilibrium aspects of macroeconomic policy. It is difficult to disentangle the effects of trade policies from those of other macroeconomic policies and unequivocally interpret the observed correlations between trade policies and economic growth. Trade is one of the several catalysts of productivity and growth and hence its contribution is contingent on its weight in economic activity.

Trade Liberalization, Economic Crises, and Growth

“…Despite their early promise, recent experience and evidence suggests not all trade reforms have been as successful as anticipated (Singh 2010). This is partly attributable to weaknesses in reform packages themselves, including inappropriate timing and sequencing of reforms, their lack of credibility to private agents and doubts over commitment shown by some political actors.…”

The Export-Productivity Link in Brazilian Manufacturing Firms

“…Further, Martins and Yang (2009) provide a meta-analysis of 33 empirical studies. Singh (2010) concludes that studies supporting self-selection overwhelm studies supporting learning-by-exporting. from international customers (that provide information about process and product innovations, reducing costs and improving quality) and from increased competition in export markets that forces firms to behave more efficiently.…”

Effect of international activity on firm performance

“…One 2010 survey concluded that studies supporting the self-selection hypothesis numerically overwhelm those supporting the learning-by-exporting hypothesis, and that this implicitly provides stronger support for the positive effects of productivity and growth on trade than for the positive effects of trade on productivity and growth [5].…”