Trade Liberalization and Growth: New Evidence

By Romain Wacziarg, Karen Horn Welch. 2008

1,316 citations recorded by the source corpus.

This paper revisits the empirical evidence on the relationship between economic integration and economic growth. First, we present an updated dataset of openness indicators and trade liberalization dates for a wide cross-section of countries in the 1990s. Second, we extend the Sachs and Warner (1995) study of the relationship between trade openness and economic growth to the 1990s, discussing recent criticisms of their measurement and estimation framework. Our results suggest that the cross-sectional findings of Sachs and Warner are sensitive to the period under consideration. In particular, an updated version of their dichotomous trade policy openness indicator does not enter significantly in growth regressions for the 1990s. Third, and most importantly, we present new evidence on the time paths of economic growth, physical capital investment and openness around episodes of trade policy liberalization. In sharp contrast to our cross-sectional results, we find that liberalization has, on average, robust positive effects on growth, openness and investment rates within countries. We illustrate these large sample findings with detailed case studies in a subsample of representative countries.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f94d7a51bb92aa9b4da6f78a18050437b50c65ae

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Citations in the corpus

Trade and Economic Growth: A Re-Examination of the Empirical Evidence (2012, neutral): “4 See Dollar (1992), Ben-David (1993), Sachs and Warner (1995), Edwards (1998), Warner (2003), Dollar and Kraay (2004), Sala-i-Martin et al. (2004), Wacziarg and Welch (2008), and Manole and Spatareanu (2010).”
Stock Market Integration and the Global Financial Crisis (2015, positive): “Trade openness Wacziarg and Welch (2008) The trade measure from Wacziarg and Welch (2008) used for example in Bekaert et al. (2014).”
Playing Favorites: How Shared Beliefs Shape the IMF's Lending Decisions (2014, neutral): “Wacziarg and Welch 2008.”
Natural Resources, Democracy and Corruption (2010, neutral): “Sachs and Warner Trade Liberalization Index: Fraction of years open between t−4 and t. Source: Wacziarg and Welch (2003).”
The trade-growth nexus in the developing countries: a quantile regression approach (2010, neutral): “Similarly, Wacziarg and Welch (2003) report higher growth effects of liberalization for countries which experienced lower levels of trade taxes, higher levels of human capital, and higher import levels.”
Foreign Direct Investment, Trade Openness and Economic Growth in Ghana: An Empirical Investigation (2015, neutral): “Some papers supporting this positive openness-growth nexus are Harrison (1996); Edwards (1998); Greenaway, Morgan, and Wright (2002); Lee, Ricci, and Rigobon (2004); Wacziarg and Welch (2008), Squalli and Wilson (2011); Sakyi, Villaverde, and Maza (2014).”
Economic and Political Liberalizations (2005, positive): “Moreover, as discussed in Wacziarg and Welch (2003), cross-sectional regressions mask useful information from the time variation in the data; and both regimes vary considerably over time in our sample.”
Viewpoint: From Cities to Productivity and Growth in Developing Countries (2008, neutral): “In a cross-country setting, Wacziarg and Welch (2003) show that increased openness has large positive effects on growth and investment.”
How Do Trade and Financial Integration Affect the Relationship between Growth and Volatility (2004, positive): “…suggesting that openness to trade has a positive impact on growth (e.g., Sachs and Warner, 1995; Frankel and Romer, 1999; Dollar and Kraay, 2003; Wacziarg and Welch, 2003), some of the findings have been challenged by Rodriquez and Rodrik (2000), who raise questions about the measures of trade…”
Aid and Growth: What Does the Cross-Country Evidence Really Show? (2005, neutral): “Wacziarg and Welch, 2003 Colony Dummy that takes a value of 1 if donor and recipient country were ever in colonial relationship.”