Editorial BoardXML

Seoul Journal of Economics - Vol. 12 , No. 1

[ Article ]
Seoul Journal of Economics - Vol. 12, No. 1, pp. 67-83
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 1999
Received May 1998 Revised Feb 1999

The Relation between Openness and Economic Growth: Postwar Evidence from 124 Countries
Tapen Sinha ; Dipendra Sinha
Instituto Techonologico Autonomo de Mexico, Mexico
Macquarie University, Australia and Yale University, USA

JEL Classification: F14


Abstract

Conventional wisdom suggests that openness of an economy promotes economic growth. Romer (1989) posits the positive relationship between openness and economic growth as a stylized fact. He uses only ex-post industrialized countries to “prove” his stylized fact thereby introducing a sample selection bias. We correct for this sample selection bias by analyzing the biggest available sample of countries using the Penn World Table 5.6. We also correct for the fact that trade does not mean export only. We obtain quantitative estimates of the impact of trade on growth. In doing so, we use modern time series techniques instead of relying on simple scatter diagrams. Results show that growth in openness is indeed significantly positively related to the growth in real GDP for 94 out of 124 countries.


Acknowledgments

We thank Professor Tony Hall of the University of Technology, Sydney for his help with programming in Shazam. We also thank Jamie Olsen of the Reserve Bank of Australia for his able research assistance and the School of Business of Bond University for financial assistance. Professor Alan Heston of the University of Pennsylvania clarified some methodological issues about using the Penn World Table 5.6. Finally, we thank an anonymous referee of this journal for helpful comments whose suggestions led to many substantial improvements in the paper. All remaining errors are our own.


References
1. Ahmad, Jaleel, and Harnhirun, Somchai. “Unit Roots and Cointegration in Estimating Causality between Exports and Economic Growth: Empirical Evidence from the ASEAN Countries.” Economics Letters 49 (1995): 329-34.
2. Balassa, Bela. “Exports and Economic Growth: Further Evidence.” Journal of Development Economics 5 (1978): 181-9.
3. Clerides, Sofronis, Lach, Saul, and Tybout, James. “Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco.” NBER Working Paper No. 5715. August 1996.
4. De Long, J. Bradford. “Productivity, Growth, Convergence and Welfare: Comment.” American Economic Review 78 (1988): 1138- 54.
5. Dollar, David. “Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-85.” Economic Development and Cultural Change 40 (1992): 523-44.
6. Edwards, Sebastian. “Openness, Trade, Liberalization, and Growth in Developing Countries.” Journal of Economic Literature 31 (1993): 1358-93.
7. Emery, Robert F. “The Relation of Exports and Economic Growth.” Kyklos 20 (1967): 470-86.
8. Feder, Gershon. “On Exports and Economic Growth.” Journal of Development Economics 12 (1982): 59-73.
9. Frankel, Jeffrey, Romer, David, and Cyrus, Teresa. “Trade and Growth in East Asian Countries: Cause and Effect?” Center for International and Development Economics Research Paper No. C95-050. Berkeley, CA: University of California, 1995.
10. Granger, Clive W. J. “Investigating Causal Relations by Econometric Models and Cross Spectral Methods.” Econometrica 35 (1969): 424-38.
11. Granger, Clive W. J. “Some Recent Developments in the Concept of Causality.” Journal of Econometrics 39 (1988): 199-211.
12. Granger, Clive W. J. and Newbold, Paul. “Spurious Regressions in Econometrics.” Journal of Econometrics 2 (1974): 111-20.
13. Harrison, Ann. “Openness and Growth: A Time Series, Cross Country Analysis for Developing Countries.” NBER Working Paper No. 5221. August 1995.
14. Hsieh, Chang-Tai. “What Explains the Industrial Revolution in East Asia? Evidence from Factor Markets.” Paper presented at the American Economic Association Annual Meeting, NY: New York 1999.
15. Krueger, Anne O. Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences. Cambridge, MA: Ballinger for NBER, 1978.
16. Krueger, Anne O. “Asian Trade and Growth Lessons.” American Economic Review 80 (1990): 108-12.
17. Leamer, Edward. “Measures of Openness.” In Robert E. Baldwin ed., Trade Policy Issues and Empirical Analysis. NBER Conference Report Series, Chicago: University of Chicago Press, 1988.
18. Liu, Xiaming, Song, Haiyan, and Romilly, Peter. “An Empirical Investigation of the Causal Relationship between Openness and Economic Growth in China.” Applied Economics 29 (1997): 1679-86.
19. Maddison, Angus. Phases of Capitalist Development. Oxford: Oxford University Press, 1982.
20. Michaely, Michael. “Exports and Growth: An Empirical Investigation.” Journal of Development Economics 4 (1977): 49-54.
21. Phillips, Peter C. B. “Understanding Spurious Regressions in Economics.” Journal of Econometrics 33 (1986): 311-40.
22. Phillips, Peter C. B. and Perron, Pierre. “Time Series Regression with a Unit Root.” Biometrika 75 (1988): 335-46.
23. Ram, Rati. “Imports and Economic Growth: A Cross Country Study.” Economia Internazionale 43 (1990): 45-66.
24. Romer, Paul. “Capital Accumulation in the Theory of Long Run Growth.” In Robert Barro ed., Modern Business Cycle Theory. Cambridge, MA: Harvard University Press, 1989.
25. Sengupta, Jati K. “Empirical Tests of New Growth Theory: Openness and Growth.” Journal of Economic Integration 9 (1994): 393-415.
26. Sims, Christopher A., Stock, James, and Watson, Mark. “Inference in Linear Time Series Models with Some Unit Roots.” Econometrica 54 (1990): 113-44.
27. Sinha, Tapen, and Sinha, Dipendra. “An Empirical Investigation into the Relationship between Openness and Economic Growth: Evidence from Asia.” International Review of Economics and Business 43 (1996): 359-70.
28. Summers, Robert, and Heston, Alan. “The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-88.” Quarterly Journal of Economics 106 (1991): 327-68.
29. Van den Berg, Hendrik, and Schmidt, James R. “Foreign Trade and Economic Growth: Time Series Evidence from Latin America.” Journal of International Trade and Economic Development 3 (1994): 249-68.
30. World Bank. World Development Report, 1992. New York: Oxford University Press, 1992.