Trade Intensity, Net Export, and Economic Growth.pdf

Review of Development Economics, 14(3), 563–576, 2010 DOI:10.1111/j.1467-9361.2010.00573.x Trade Intensity, Net Export, and Economic Growthrode_573 563..576 Pak Hung Mo* Abstract Many studies suggest the positive causal effects of trade on productivity and growth. However, controversies are still prevalent among vast empirical studies on the issue. In this paper, I propose a standard empirical framework for investigating GDP growth and apply the framework to estimate the growth effects and transmission channels of per capita trade. Based on prior information, theoretical reasoning, and various empirical evidences, I conclude that international trade has positive independent effects on economic performance. A 1% increase in per capita trade raises the equilibrium GDP growth by 0.29%. 1. Introduction In this paper, I propose a standard empirical framework for investigating GDP growth and apply the framework to estimate the growth effect and transmission channels of per capita trade. Historical reviews and casual observations suggest that the creation and transmission of technology and knowledge have been extremely important in the development processes.Trade can enhance productivity growth by raising the variety of intermediates available and, in general, international technology, knowledge, and idea spillovers to the citizens (Dornbusch, 1991; Grossman and Helpman, 1991). Many findings do suggest the positive causal effects of trade on productivity and growth (among many others, Frankel and Romer, 1999; Alcala and Ciccone, 2004). However, controversies are still prevalent given the vast empirical studies on the issue (among many others, see Rodriguez and Rodrik, 2000; Baldwin, 2003; Yanikkaya, 2003; Rodrik et al., 2004). A major problem among the studies is that the empirical models are usually ad hoc, with diverse indicators of