Openness, Productivity and Growth: What Do We Really Know?

Abstract

Comparative data for 93 countries are used to analyse the robustness of the relationship between openness and total factor productivity growth. Nine indexes of trade policy are used to investigate whether the evidence supports the view that total factor productivity growth is faster in more open economies. The results are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries experienced faster productivity growth. Although the use of instrumental variables help dealing with endogeneity, issues related to causality remain somewhat open, and require time series analyses to be adequately addressed.

Does Trade Openness Matter for Economic Growth in the CEE Countries?

“…And in fact, the links between these two variables have been blurred by various factors (see Nannicini and Billmeier, 2011). Studies such as Dollar (1992), Sachs and Warner (1995), Edwards (1992Edwards ( , 1998, and Vamvakidis (2002) document evidence in favour of a positive effect of trade openness on growth; while Alcalá and Ciccone (2004) demonstrate that the effects work primarily through total factor productivity.…”

“…Most importantly, our paper is closely related to Squalli and Wilson (2011) who recommend outcome-oriented measures when testing the opennessgrowth hypothesis because they are easily obtainable from objective data sources. Unlike the outcome-oriented measures, the policy-oriented measures are often contrived, leading to varieties of policy-oriented measures being proposed in the literature (see, for example, Edwards, 1998). Following Squalli and Wilson (2011), we construct an index of trade openness that captures countries' share of trade, interaction and interconnectedness with the rest of the world.…”

“…Several policy-oriented measures of trade openness have been developed in the literature (see Lee et al, 2004). Edwards (1998) proposes nine policy-oriented measures of trade openness in his paper. However, the problem with the policy-oriented measures is that they are subjective and therefore vary considerably from one author to the other.…”

“…The control variables are labour, capital, government consumption, and private credit. At least one of these variables has been included in studies such as Levine and Renelt (1992), Sachs and Warner (1995), Harrison (1996), Edwards (1998), Miller and Upadhyay (2000), Yanikkaya (2003), Awukose (2007), Wacziarg and Welch (2008), among others. Our data covers seventeen (17) countries 4 over the period 1994 to 2014.…”

Examining the Export-led Growth Hypothesis: The case of Croatia

“…Regarding the relationship between exports and economic growth, as has been noted, some analysts believe that the causality direction is from export to economic growth, which is expressed as the export-led growth hypothesis (Balassa, 1978;Bhagwati, 1978;Edwards, 1998). In addition, various studies support growth-led export in a way that the causality direction is from economic growth to export growth.…”