Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation

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

Cross-Country Growth Empirics and Model Uncertainty: An Overview

The aim of this paper is to provide an overview of empirical cross-country growth literature. The paper begins with describing the basic framework used in recent empirical cross-country growth research. Even though this literature was mainly inspired by endogenous growth theories, the neoclassical growth model is still the workhorse for cross-country growth empirics. The second part of the paper emphasises model uncertainty, which is indeed immense but generally neglected in the empirical cross-country growth literature. The most outstanding feature of the literature is that a large number of factors have been suggested as fundamental growth determinants. Together with the small sample property, this leads to an important problem: model uncertainty. The questions which factors are more fundamental in explaining growth dynamics and hence growth differences are still the subject of academic research. Recent attempts based on general-to-specific modeling or model averaging are promising but have their own limits. Finally, the paper highlights the implications of model uncertainty for policy evaluation