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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 12, No. 1, pp.67-83
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.

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