Institutions and Structural Unemployment: North-South Trade, Openness and Growth

Abstract

In models of endogenous growth, international trade can impact upon growth by allowing access to the innovative products of other countries. Since developing countries do little if any innovation, it is primarily through trade with developed countries that they profit from higher levels of technological development. In this paper we construct an empirical model to estimate trade flows from the North to the South. Using the results of this model we construct a measure of openess to Northern imports, based on the deviation of actual imports from that predicted by our model.We find that this measure of openness is significantly and robustly related to economic growth, suggesting that trade with advanced countries can facilitate growth through the absorption of advanced technology.