Trade and Productivity

Abstract

We find that international trade has an economically significant and statistically robust positive effect on productivity. Our trade measure is imports plus exports relative to purchasing power parity GDP (real openness), which we argue is preferable on theoretical grounds to the nominal measure conventionally used. We also find a significantly positive aggregate scale effect. Our estimates control for proxies of institutional quality as well as geography and take into account the endogeneity of trade and institutional quality. Our analysis of the channels through which trade and scale affect productivity yields that they work through total factor productivity.* We thank Tito Cordella, Luis Cubeddu, and Walter Garcia-Fontes for help with the data, José Garcia-Montalvo and Marek Jarocinski for their econometric expertise, Rita Almeida, Pablo Fleiss, and Israel Sancho for excellent research assistance, and David Romer for kindly providing the data and programs used in Frankel and Romer [1999]. The paper has benefited from the comments of editors, anonymous referees, and other colleagues. Downloaded from2. The monotonic relationship between specialization and real openness combined with the effect of specialization on the price of nontradable goods in (2) implies that the price level should be increasing in real openness (trade-related Balassa-Samuelson effect). We present empirical evidence for this relationship in the Appendix. Downloaded from FIGURE II Moreira [2003] 95 Percent Confidence Ellipsoids for the Effect of Real Opennessand Institutional Quality on Productivity ROpen denotes real openness, and IQual denotes our proxy of institutional quality (see Section IV for details on these variables). The clouds consist of all combinations of the effect of trade and institutions on productivity that are not significantly different at the 5 percent level from the TSLS estimates. The results are generated using Ox version 3.30.

Openness to International Trade and Economic Growth: A Cross-Country Empirical Investigation

“…In summary, the regression results in Table 2 show a positive association between economic growth and international trade and confirm the findings of previous work (Vamwakidis (2002), Dollar and Kraay (2003), Yanikkaya (2003), Alcalá and Ciccone (2004) are a few examples). However, it is puzzling that we could not find any statistically significant relation between In order to check possible outliers we apply the method suggested by Hadi (1992) on each data set subject to cross-country growth regressions in Table 2.…”

“…In column 5 we estimate our baseline model with the variable of real openness from the Penn World Tables. This variable is suggested by Alcalá and Ciccone (2004) and defined as the ratio of exports plus imports relative to GDP in constant prices. Alcalá and Ciccone (2004) argue that real openness is a better measure of openness compared to current openness in the presence of trade-driven productivity.…”

Trade and Productivity Growth: Evidence From Vietnam’s Manufacturing Sector at Provincial Level

“…Using the new way of measuring trade liberalization, Alcalá and Ciccone (2004) review the relationship between trade liberalization and labor productivity at countries level. Employing a combination some dataset at country level such as Penn World Table and Statistics from IMF and new term "real openness", the two author assert that "in contrast to the marginally significant and non-robust effects of trade on productivity found previously, our estimates are highly significant and robust even when we include institutional quality and geographic factors in the empirical analysis" (Alcalá & Ciccone, 2004).…”

Economic Development in Pre-Independence Botswana, 1820-1966: Historical Trends, Contributing and Countervailing Factors

“…This can be a disadvantage for economic development, as the costs of trade are higher in landlocked countries, and their access to world markets is limited. As a result, Botswana may find it more difficult to enjoy some of the benefits that flow from trade: These include increased specialization and productivity growth (Alcalá and Ciccone, 2004), greater technological diffusion (Keller, 2004), as well as access to more ideas that can spur innovation (Romer, 1994). Gallup, Sachs and Mellinger (1999) point out that nearly all of the world"s landlocked countries are poor, with the exception of a few countries in Western and Central…”