Openness, Outward Orientation, Trade Liberalization and Economic Performance in Developing Countries

Abstract

This paper deals with the role of trade regimes in determining economic performance and growth in the developing countries. The policy and empirical literatures on trade orientation and economic growth are critically reviewed; it is argued that a key limitation of these works has been the inability to create measures of trade orientation that are: (i) objective; (ii) continuous and (iii) comparable across countries. A growth model that relates trade orientation to the ability to absorb technological progress from the rest of the world is developed for the case of a small country. The model is tested using a new index of trade orientation that is free from the limitations described above. The results obtained using a cross country data set provide strong support to the hypothesis that, with other things given, countries with a less distorted external sector grow faster than those countries with a more distorted external sector. The new theories of economic growth are also discussed, and their usefulness for analyzing the relation between trade orientation and growth in the developing countries is assessed.

Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation

“…2 However, the cross-country growth literature is still far from settled since the findings of this literature have been subject to an important criticism in terms of robustness. In particular, Edwards (1993) and Rodrik and Rodríguez (2000) argue that the strong results in favour of openness may arise from model misspecification and/or openness measures may be acting as a proxy for other macroeconomic policies or other important factors such as institutions and geography. In a nutshell, it is fair to say that the crosscountry studies suffer from lack of robust and convincing evidence on the openness-growth connection and this issue is still highly controversial.…”

Beyond the average effects: The distributional impacts of export promotion programs in developing countries

“…4 Specifically, firms pursuing cross-border economic opportunities must engage in a costly process of identifying potential trading partners and assessing their reliability, trustworthiness, timeliness, and capabilities (see 3 Externalities may also originate from managerial practices, training activities, technological change, and production linkages. Thus, exporters have been said to be likely to adopt efficient and competitive management styles and to provide employees with higher quality training, which may potentially benefit non-exporting firms, for instance, via turnover of managers and employees (see Keesing, 1967;Feder, 1983;and Edwards, 1993). In addition, externalities related to technological development may be extensive due to the imperfect tradeability of technology (see Westphal, 1990).…”

New trade theory versus old trade policy: a continuing enigma

“…16 These points are discussed at length in Fine (1999) and carry over, if less observed in the literature, from statistical investigation of growth to trade performance. 17 See also the review provided by Edwards (1993) who concludes on the mixed results in favour of trade liberalisation, p. 1389: Much of the cross-country regression based studies have been plagued by empirical and conceptual shortcomings. The theoretical frameworks used have been increasingly simplistic, failing to address important questions such as the exact mechanism through which export expansion affects GDP growth, and ignoring important potential determinants of growth such as educational attainment.…”