Trade Orientation, Distortions and Growth in Developing Countries

Sebastian Edwards

NBER Working Paper No. 3716
Issued in May 1991
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

In this paper I use a cross country data set to analyze the relationship between trade orientation, trade distortions and growth. I first develop a simple endogenous growth model that emphasizes the process of technological absorption in small developing countries. According to this model countries that liberalize their international trade and become more open will tend to grow faster. Whether this higher growth is permanent, or only a short run result, will depend on the relative size of some key parameters. using nine alternative indicators of trade orientation I find out that the data supports the view that more open economies tend to grow faster than economies with trade distortions. The results are robust to the method of estimation, to correction for errors in variables and for the deletion of outliers. I finally argue that future research in the area should move towards the empirical investigation of the microeconomics of technological innovations and growth.

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Document Object Identifier (DOI): 10.3386/w3716


  • "The Political Economy of Inflation and Stabilization in Developing Countries," Economic Development and Cultural Change, January 1994, 42(2): 235-266
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