Trade Openness and Economic Growth Can We Estimate the Precise Effect?

19 Pages Posted: 15 Aug 2008

See all articles by Georgios Karras

Georgios Karras

University of Illinois at Chicago - Department of Economics

Date Written: August 14, 2008

Abstract

While various theoretical models predict that openness to international trade accelerates productivity and promotes economic growth, the empirical evidence has been mixed or imprecise. This paper investigates the issue using two panel data sets: one of 56 countries covering the period 1951-1998, and another of 105 countries over 1960-1997. The results show that the effect of trade openness on economic growth is positive, permanent, statistically significant, and economically sizable. This effect is robust across the two data sets used and a number of different estimation methods and lag lengths. Specifically, it is shown that increasing trade (exports plus imports) as a fraction of GDP by 10 percentage points, permanently increases the real growth rate of GDP per capita by 0.25 to 0.3 percent.

Keywords: Openness, Internatinal Trade, Economic Growth

JEL Classification: F43,O40

Suggested Citation

Karras, Georgios, Trade Openness and Economic Growth Can We Estimate the Precise Effect? (August 14, 2008). Applied Econometrics and International Development, Vol. 3, No. 1, 2003, Available at SSRN: https://ssrn.com/abstract=1225622

Georgios Karras

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States
312-996-2683 (Phone)
312-996-3344 (Fax)

HOME PAGE: http://www.uic.edu/~gkarras/

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