Does openness lead to sustained economic growth? Export growth versus other variables as determinants of economic growth

Abstract

This research revisits the issue of economic growth determinants in developing countries with a focus on international integration variables. Four alternative variables are tested, namely, export growth, trade openness, export diversification, and foreign direct investment (FDI), in a single framework. This study finds that export growth is the most robust, in addition to export specialization, and that traditional variables of trade openness and FDI are not robust. This result is based on the econometric estimations that use not only cross-section and fixed-effect panel estimations but also system generalized method of moments estimations. The findings warn against the traditional emphasis on simple trade openness and FDI as policy prescriptions for developing countries. In other words, simply opening an economy for international integration does not guarantee sustained economic growth unless these actions lead to export growth, which requires capability building in indigenous firms and investments in innovations. This observation is consistent with the experiences of successful economies in Asia, such as Korea, Taiwan, and China.

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