Trade Liberalisation, Economic Crises and Growth

Abstract:     
Many economic reforms are undertaken at a time of economic crisis. But is this a good time to undertake trade reform? In this paper we investigate whether an economic crisis at the time of trade liberalization affects a country's subsequent growth performance. We employ threshold regression techniques on five crisis indicators commonly used in the literature, to identify the relevant "crisis values" and to estimate the differential post-liberalization growth effects in the crisis and non-crisis regimes. We find that the post-liberalization growth depends on the characteristics of the crisis. Broadly speaking, an internal crisis implies lower growth and an external crisis higher growth relative to the non-crisis regime. These effects appear to be present in both the short and longer runs.

Number of Pages in PDF File: 26

Keywords: Trade liberalisation, Growth, Crises

JEL Classification: F14, 040

working papers series