Working Paper: NBER ID: w2908
Authors: Sebastian Edwards
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.
Keywords: trade liberalization; economic performance; developing countries; trade regimes; economic growth
JEL Codes: F1; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalization (F13) | economic performance (P17) |
| external sector distortion (F69) | economic performance (P17) |
| trade orientation (F10) | ability to absorb technological progress (O33) |
| trade orientation (F10) | economic performance (P17) |