Does openness to trade affect total factor productivity growth: evidence from 45 japanese manufacturing industries

Abstract

This study examines the effects of openness to trade on total factor productivity (TFP) growth using the data from 45 Japanese man-ufacturing industries. The extreme bound analysis (EBA) test is employed to perform a sensitivity analysis. The results of EBA test of Japanese manufacturing industries do not support the hy-pothesis of “the virtuous cycle of trade and growth. ” First, among several measures of growth, output growth appears to be mostly robust and positive in explaining the TFP growth of 45 Japanese manufacturing industries. Second, most of the variables of open-ness to trade do not show a robust and positive relationship with TFP growth. Considering these findings that trade expansion has an insignificant and ambiguous effect on TFP growth, a scale ef-fect of output growth may have affected the growth of Japanese manufacturing industries for the period of 1973-1998.

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