Does Trade Cause Growth?
Jeffrey A. Frankel, David H. Romer
American Economic Review · 1999 · Volume 89 · Issue 3
Abstract
Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries' geographic characteristics, however, have important effects on trade and are plausibly uncorrelated with other determinants of income. This paper, therefore, constructs measures of the geographic component of countries' trade and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income.
Keywords
Economic Growth of Open Economies, One, Two, and Multisector Growth Models
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