The Long-Run Effects of Trade on Income and Income Growth

39 Pages Posted: 29 Jan 2006

See all articles by Allan D. Brunner

Allan D. Brunner

International Monetary Fund (IMF)

Date Written: February 2003


This paper examines the dynamic relationship between trade and income. While most economists agree that increased trade leads to an increase in average income, economic theory is ambiguous about the possible effects on the long-run growth rate of the economy. Using a dynamic panel data model, the hypotheses of no long-run effects of trade on income and on income growth are tested explicitly. The possibility of endogeneity is addressed by constructing an instrument for trade by extending Frankel and Romer`s (1999) cross-sectional approach to the case of a panel data model. The empirical results indicate that trade has a large and significant effect on the level of income, but the effect on income growth is small and non-robust to model specification.

Keywords: panel data model, trade liberalization, economic growth, economic development

JEL Classification: C23, F15, F43, O11, P51

Suggested Citation

Brunner, Allan David, The Long-Run Effects of Trade on Income and Income Growth (February 2003). IMF Working Paper No. 03/37, Available at SSRN:

Allan David Brunner (Contact Author)

International Monetary Fund (IMF) ( email )

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