The World Bank Economic Review Advance Access published online on June 3, 2008
The World Bank Economic Review, doi:10.1093/wber/lhn007
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Trade Liberalization and Growth: New Evidence
Correspondence: Email address is wacziarg{at}gsb.stanford.edu
JEL codes: F1, F4, O4
A new data set of on openness indicators and trade liberalization dates allows the 1995 Sachs and Warner study on the relationship between trade openness and economic growth to be extended to the 1990s. New evidence on the time paths of economic growth, physical capital investment, and openness around episodes of trade policy liberalization is also presented. Analysis based on the new data set suggests that over the 1950–98 period, countries that liberalized their trade regimes experienced average annual growth rates that were about 1.5 percentage points higher than before liberalization. Postliberalization investment rates rose 1.5–2.0 percentage points, confirming past findings that liberalization fosters growth in part through its effect on physical capital accumulation. Liberalization raised the average trade to GDP ratio by roughly 5 percentage points, suggesting that trade policy liberalization did indeed raise the actual level of openness of liberalizers. However, these average effects mask large differences across countries.
Romain Wacziarg (corresponding author) is an associate professor of economics at the Stanford Graduate School of Business. Karen Horn Welch is director, Domestic Public Equity, at the Stanford Management Company, in Menlo Park, California; her email address is karen.welch{at}stanford.edu. The authors thank Jaime de Melo, John McMillan, Paul Segerstrom, and Jessica Wallack; an anonymous referee; and seminar participants at Columbia University, Harvard University, the University of Colorado at Boulder, and Stanford University for useful comments. They thank Peter Henry and Jonas Vlachos and for sharing their data. This article was written while Romain Wacziarg was the Edward Teller National Fellow at the Hoover Institution.
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