Trade Openness and Growth: A Network-Based Approach

57 Pages Posted: 4 Oct 2021

See all articles by Georg Duernecker

Georg Duernecker

University of Mannheim

Moritz Meyer

The World Bank

Fernando Vega-Redondo

Universidad de Alicante - Department of Economic Analysis; European University Institute; Bocconi University

Date Written: 2021

Abstract

In this paper, we propose a novel approach to the study of international trade that leads to a measure of country openness that is quite different from the various alternatives proposed by the received literature. In contrast to these, our measure does not use indicators of aggregate trade intensity, trade policy, or trade restrictiveness but relies on a broad systemic viewpoint on the effects of trade. More specifically, it goes beyond direct trade connections and measures a country’s level of integration in the world economy through the full architecture of its second, third, and all other higher-order connections in the world trade network. We apply our methodology to a sample of 204 countries spanning the period from 1962 to 2016 and perform a Bayesian analysis of model selection to identify the most important correlates of growth. The analysis finds that there is a sizable and significant positive relationship between our integration measure and a country’s rate of growth, while that of the aforementioned traditional measures of outward orientation is only minor and statistically insignificant. We perform several sensitivity checks and conclude that our baseline findings are very robust to either different data sets or alternative variations of the integration measure. Overall, this suggests that a network-based approach to measuring country openness may provide a valuable perspective on economic growth.

Keywords: globalization, trade integration, economic growth, network analysis, dynamic panel model, Bayesian model averaging

Suggested Citation

Duernecker, Georg and Meyer, Moritz and Vega-Redondo, Fernando and Vega-Redondo, Fernando and Vega-Redondo, Fernando, Trade Openness and Growth: A Network-Based Approach (2021). CESifo Working Paper No. 9319, Available at SSRN: https://ssrn.com/abstract=3932027 or http://dx.doi.org/10.2139/ssrn.3932027

Georg Duernecker (Contact Author)

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Moritz Meyer

The World Bank ( email )

1818 H Street
Washington, DC 20433
United States

Fernando Vega-Redondo

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

Universidad de Alicante - Department of Economic Analysis ( email )

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03080 Alicante
Spain
+34 96 590 3616 (Phone)
+34 96 590 3898 (Fax)

European University Institute

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Italy

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