Working Paper: NBER ID: w4511
Authors: Sebastian Edwards
Abstract: This paper analyzes the relationship between trade policy and economic performance. The paper is divided in two fundamental parts. The first one uses a cross country data set to investigate the relationship between trade policy and productivity growth. It is found that countries that are more open to the rest of the world have experienced faster growth in total factor productivity than countries with high trade barriers. In the second part the recent Latin American experiences with trade liberalization reforms are investigated. It is shown that in the last few years the Latin American countries have gone from having one of the most distorted external sectors, to having very low degrees of protectionism. The extent of the liberalization efforts is documented and the effect on productivity and exports is investigated.
Keywords: trade policy; exchange rates; economic growth; productivity; Latin America
JEL Codes: F13; F31; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased openness to international trade (F69) | Enhanced total factor productivity (TFP) growth (O49) |
| Trade liberalization (F13) | Reduced trade distortions (F13) |
| Reduced trade distortions (F13) | Increased efficiency of resource allocation (D61) |
| Increased efficiency of resource allocation (D61) | Increased productivity (O49) |
| Trade liberalization (F13) | Overall economic growth (O49) |
| Reduction of protectionist policies (F13) | Improvements in productivity and export performance (O49) |