Trade, Regulations, and Growth

By Bineswaree Bolaky, Caroline Freund. 2004

187 citations recorded by the source corpus.

Trade does not stimulate growth in economies with excessive business and labor regulations. The authors examine the effect of openness on growth using cross-country regressions in both levels and changes. Results from the levels regressions imply that increased openness is associated with a lower standard of living in heavily-regulated economies. Growth regressions confirm that the effect of increased trade on growth is absent in these countries. The authors also find that once they control for the effect of trade on growth in heavily regulated economies, the evidence that trade positively affects growth is stronger than has been found in previous studies. Excessive regulations restrict growth because resources are prevented from moving into the most productive sectors and to the most efficient firms following liberalization. In addition, in highly regulated economies, increased trade is more likely to occur in the wrong goods-that is, goods where comparative advantage does not lie. The results imply that countries must create a sound business environment before trade can be used as an engine of growth.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c8634d140e6ab1d0b14b8e928b23744c080118b2

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In Economics and Econometrics

Citations in the corpus

Political risk, institutions and foreign direct investment (2007, methodology): “6 In recent years, they have been used, for instance, by Harms and Ursprung (2002), Bolaky and Freund (2004), Rodrik et al. (2004), and Noguer and Siscart (2005).”
Trade Facilitation and Manufactured Exports: Is Africa Different? (2009, background): “Freund and Bolaky (2004) identify regulations that govern labour market flexibility, business entry and bankruptcy and show, within a growth regression model, that trade enhances growth rates in economies with good regulatory quality.”
Openness can be good for Growth: The Role of Policy Complementarities (2005, unknown): “Specifically in the analysis of growth effects of trade openness, an important antecedent of our work is the empirical study by Bolaky and Freund (2004).”
Foreign Direct Investment, Regulations and Growth (2006, unknown): “For instance, Bolaky and Freund (2004) and Pica and Mora (2005) have used the Doing Business indicators in their empirical work.”
Trade and Employment: Stylized Facts and Research Findings (2005, unknown): “The same is true of restrictive labor market regulation—see e.g., Besley and Burgess (2004) and Bolaky and Freund (2004).”