Discussion Paper
No. 2012-25 | May 22, 2012
Bülent Ulaşan
Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation

Abstract

In this paper, we revisit the empirical evidence on the relationship between trade openness and long-run economic growth over the sample period 1960-2000. In contrast to previous studies focusing mainly on the period 1970-1990, this paper reassesses the openness-growth nexus over a much longer sample period, enabling us to better account both trade policy stance and long-run growth dynamics. We carry out our empirical investigation by employing various openness measures suggested in the literature rather than relying on a few proxy variables. We also construct three additional composite trade policy indexes directly measuring trade policy stance. Our findings indicate that many openness variables are positively and significantly correlated with long-run economic growth. However, in some cases, this result is driven by the presence of a few outlying countries. Adding to the fragility of the openness-growth association, the significance of openness variables disappears once other growth determinants, such as institutions, population heterogeneity, geography and macroeconomic stability are accounted for.

Data Set

JEL Classification:

F13, F43, O47

Cite As

Bülent Ulaşan (2012). Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation. Economics Discussion Papers, No 2012-25, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-25


Comments and Questions



Anonymous - Referee Report 1
May 23, 2012 - 09:06
Comment on "Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation" A) Summary of the Paper The paper tries to contribute to the existing literature which assesses the relationship between trade openness and long-run economic growth. B) Comments 1- In abstract the author says that “Our findings indicate thatmany openness variables are positively and significantly correlated with long-run economic growth.” The author should name the variables or at least mention which type of variables (trade volumes, direct trade policy measures, deviation measures, or subjective indexes) contributes mostly in explaining growth. 2- The introduction started by a question “Does openness tointernational trade boost economic growth in the long run?”, but did not go any farther. The first paragraph needs a little more work, perhaps adding an interesting fact about the area to grab the reader. 3- In introduction, the author should summary the findings ofexisting papers for each category of openness measures applied by the author. 4- The author should dedicate a short section, literature, andreview the theoretical and empirical studies on trade openness and growth. In this section the author should not neglect the contribution of papers such as Chandran and Munusamyc (2009). In fact, the author should provide adequate background information. 5- No information is available on the composition of the sample,the name of countries, and their geographical distribution. If oil-exporting countries included (it seems included), in robustness test they should be excluded from the sample, due to bulk of GDP of oil producers represents the extraction of natural resources, to examine whether the results are robust. 6- It would be better if the author identify the level ofsignificance by stars. However, this is not a big issue. 7- The authors examined the impact of several openness variableson growth and reach to conflicting and sometimes inconclusive results.One way to avoid this would be to apply Principal Component Analysis (SPA). In this respect, the author could incorporate all openness variables for each category and by applying SPA reach to one index for each of four categories of openness variables. This could help the author to interpret better the results than current scatter of findings. 8- The author should re-test the findings of previous studiesusing regression for the period 1970-1990. And more importantly, since he claims that the contributions of the paper is twofold (one the long period covered (1960-2000) and second uses of different openness variables), he should give the reader what new findings have been indicating that previous studies have not. Also, the similar study by Yanikkaya (2003) used a lot of variables and hence the author must compare results systematically with this study. 9- The paper has no policy implication. The results should enablethe author to suggest policy recommendations. Again, this is because conflicting results presented. 10- The conclusion section seems to be a rehash of the paper. Itdoes not provide new synthesis or insights. 11- Some phrases and expressions are not well written. C) Conclusion The strengths of the paper are that the authors test many openness variables for a long period and use a lot of sensitive tests, but the weaknesses is that there are no clear and robust findings to send message to the readers and policy makers. In general, the paper has a good potential for publication if the above comments are seriously taken into consideration and also the author try to shorten but sharpen the paper.

Bülent Ulaşan - Reply to Referee Report 1
July 11, 2012 - 10:48
I would like to express my thanks to the anonymous referee for valuable comments and criticisms. Please see attached document for my reply to the referee report.
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Anonymous - Referee Report 2
June 07, 2012 - 10:04
The paper examines the empirical evidence on the relationship between trade openness and growth. The author extend the neoclassical model by Mankiew, Romer and Weil (1992) by various measures of trade openness.Their main contribution is to use several measures of trade openness, extend the sample previously used by ten years( i.e. add 1960s) and check if their results are driven by outliers. Despite the fact that the paper is well written and it’s easy to read my recommendation is to reject it. First of all, the paper doesn’t seem to provide any new insights to the relation between trade openness and growth. Throughout the paper, the author only replicates previous studies, its only value added being to exclude outliers and add some additional years. The author estimates a VERY large number of regressions (almost 100). This gives an impression to the reader that he doesn’t really know what is the best method to measure trade openness and is simply trying all measures he has found in the literature (more than 20 in total). In addition, previous papers estimating the relation between growth and trade are quite old and therefore using the same estimation technique (i.e. averaging all RHS variables and thus ending up with a simple cross-section model with less than 100 observations) seems not really appropriate nowadays. The author should at least explain why he doesn’t try to exploit the panel dimension of his data e.g. by averaging over shorter time periods. Moreover, in some specifications the averages over time of the RHS variables do not exactly match the growth rate on the LHS. In Table 5, the dependent variable is always the growth rate between 1960 and 2000 whereas for example tariffs rate are averaged over 1990-99 period. Another drawback, as the author notices, is that the model used in section 3.3 seems too simple to predict trade flows.

Bülent Ulaşan - Reply to Referee Report 2
June 21, 2012 - 13:53
I would firstly like to thank the anonymous referee for reading and reviewing my paper. It is, however, disappointing to see that the referee recommends rejecting my paper without solid criticism and comments. Please, see attached document for my response to the referee report
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Jan Fidrmuc - Decision Letter
August 08, 2012 - 13:35
See attached file
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Bülent Ulasan - Reply to Editor
September 17, 2012 - 11:13
See attached file
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