Trade Policy Openness and Economic Performance: Cross-country Evidence

There is a lack of strong empirical evidence on the relationship between open trade policies and economic performance largely due to problems associated with the measurement of trade policy openness. This paper uses a new measure of trade policy openness along with other available measures in the literature to test the robustness of the relationship using a large cross-country data set .It was found that an increase in openness by ten percentage points would raise growth in output per worker by 0.6 percentage points annually. Of this contribution, almost half of influence operates through improvements in total factor productivity, while the other half operates through accumulating physical and human capital. The contribution of openness to growth via physical capital accumulation is about twice as large as the contribution via human capital accumulation. (JEL F19, O24) DOI: 10.4038/ss.v35i1.1233 Staff Studies Volume 35 Numbers 1& 2 2005 p.33-61