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Productivity, Trade, and Institutional Quality: A Panel Analysis
Author(s) -
Doyle Eleanor,
Martinez-Zarzoso Inmaculada
Publication year - 2011
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/sej.2011.77.3.726
Subject(s) - openness to experience , endogeneity , productivity , panel data , economics , quality (philosophy) , gravity model of trade , estimation , international economics , panel analysis , trade barrier , bilateral trade , fixed effects model , international trade , econometrics , macroeconomics , geography , philosophy , epistemology , archaeology , psychology , social psychology , management , china
Recognizing that gains historically attributed to trade capture instead the roles of institutions and geography, we estimate the relationship between labor productivity and trade for a panel of countries, 1980 to 2000. We use real and nominal openness as measures of trade. The endogeneity of trade and institutional quality is accounted for with instruments. Our trade instrument is based on a theoretically motivated gravity equation and uses a more comprehensive data set than in related studies. Fixed‐ and random‐effects and system‐GMM panel estimation methods address potential biases associated with cross‐section estimations. We find a robust relationship between real openness and labor productivity from the 1990s. Countries that trade more generate higher levels of productivity, supporting an institutional theory of growth. We find evidence that countries with low‐quality institutions benefit from openness to trade and that the positive effect of trade on labor productivity is lower for more populated countries.