DP2143 Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence

Author(s): Francisco Rodríguez, Dani Rodrik
Publication Date: May 1999
Keyword(s): Economic Growth, Trade Policy
JEL(s): F13, O57
Programme Areas: Public Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2143

Do countries with lower policy-induced barriers to international trade grow faster, once other relevant country characteristics are controlled for? There exists a large empirical literature providing an affirmative answer to this question. We argue that methodological problems with the empirical strategies employed in this literature leave the results open to diverse interpretations. In many cases, the indicators of "openness" used by researchers are poor measures of trade barriers or are highly correlated with other sources of bad economic performance. In other cases, the methods used to ascertain the link between trade policy and growth have serious shortcomings. Papers that we review include Dollar (1992), Ben-David (1993), Sachs and Warner (1995), and Edwards (1998). We find little evidence that open trade policies--in the sense of lower tariff and non-tariff barriers to trade--are significantly associated with economic growth.