Trade and Growth in East Asian Countries: Cause and Effect?

Jeffrey A. Frankel · David Romer · Teresa L. Cyrus

108 citations0/0 files storedNational Bureau of Economic Research

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Global trade and economics Monetary Policy and Economic Impact Economic Growth and Productivity

Abstract

Estimates of growth equations have found a role for openness, particularly in explaining rapid growth among East Asian countries.But major concerns of simultaneous causality between growth and trade have been expressed, This study aims to deal with the endogeneity of trade by using as instrumental variables the exogenous determinants from the gravity model of bilateral trade, such as proximity to trading partners.We find that the effect of openness on growth is even stronger when we correct for the endogeneity of openness than in standard OLS estimates.We conclude with estimates of how much has been contributed to East Asian growth both by the exogenous or geographical component of openness and by the residual or policy component.

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References

1992A Contribution to the Empirics of Economic Growth 1989Economic Growth in a Cross Section of Countries 1991A SENSITIVITY ANALYSIS OF CROSS-COUNTRY GROWTH REGRESSIONS 1995Economic Reform and the Process of Global Integration 1986Market Structure and Foreign Trade 1994The Myth of Asia's Miracle 1995The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience 1992Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985

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