Trade, regulations, and income

By Caroline Freund, Bineswaree Bolaky. 2008

320 citations recorded by the source corpus.

Abstract We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian “creative destruction”, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/d92c7543c981332ddeff2bc0199e8a17314c1e5c

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Citations in the corpus

Trade openness, income levels, and economic growth: The case of developing countries, 1970–2009 (2015, background): “…and Tervio 2002; Brunner 2003; Lee, Ricci, and Rigobon 2004; Alcalá and Ciccone 2004; Noguer and Siscart 2005; Salinas and Aksoy 2006; Rassekh 2007; Freund and Bolaky 2008; Wacziarg and Welch 2008; Chang, Kaltani, and Loayza 2009; Dufrénot, Mignon, and Tsangarides 2010; Squalli and Wilson 2011;…”
Does Trade Reduce Poverty?: A View from Africa (2014, background): “For example, Bolaky and Freund (2008) show that trade reforms actually lead to income losses in highly regulated economies.”
Empirical Analysis of the Effects of Trade Openness on Economic Growth: An Evidence for South East European Countries (2015, background): “More recently, Freund and Bolaky (2008) using cross-country data from 126 countries, find that trade openness has a positive impact on per capita income.”
Trade and economic growth in developing countries: Evidence from sub-Saharan Africa (2017, background): “The evidence has indicated that excessive regulations restrict growth because resources are prevented from moving into the most productive sectors and to the most efficient firms within sectors (Bolaky and Freund, 2008) and that institutions can help explain the heterogeneity in the trade–growth rel”
Services trade policy and manufacturing productivity: The role of institutions (2017, background): “Empirical investigation of this conditionality hypothesis finds that trade openness is more likely to have a positive impact on income25 and economic growth if the institutional context is supportive (see for instance Borrmann et al., 2006; Freund and Bolaky, 2008).”
WTO Accession and Performance of Chinese Manufacturing Firms (2017, background): “…productivity, but we can only identify the average effect for each industry and we cannot distinguish effects for subgroups of firms. in line with the cross-country evidence in Freund and Bolaky (2008) and with the evidence from the removal of textile quotas in Khandelwal, Schott, and Wei (2013).”
The Regulation of Entry (2009, background): “Helpman et al (2008), Freund and Bolaky (2008) and Chang et al (forthcoming), study the effect of entry regulation when economies open up their product markets to international competition.”
Jobs for Shared Prosperity: Time for Action in the Middle East and North Africa (2013, background): “Freund and Bolaky (2008) find that all 12 MENA countries included in their sample of 126 countries are above the median in regulation of their economies.”
The relationship between trade openness and economic growth: Some new insights on the openness measurement issue (2011, unknown): “Empirical evidence tends to show that in the long-run more outward-oriented countries register higher economic growth (Sachs and Warner, 1995; Edwards, 1998; Frankel and Romer, 1999; Dollar and Kraay, 2004; Lee et al., 2004, Freund and Bolaky, 2008, and Chang et al., 2009, among others).”
The impact of trade openness on economic growth: The case of Cote d’Ivoire (2017, background): “A number of studies point to positive growth effects of trade openness (e.g. Chang, Kaltani, & Loayza, 2009; Dollar & Kraay, 2004; Frankel & Romer, 1999; Freund & Bolaky, 2008).”
Trade, growth and income (2011, background): “Hansen (2000) shows that it is computationally easy to obtain the OLS estimates through concentration.”