Exploring the relationship between trade openness and growth

Abstract

This thesis uses panel data estimation techniques and four different measures of openness to investigate the relationship between openness and growth in a cross-country sample. Three out of four measures are found to be positively and significantly related to growth. Employing interaction terms, I also uncover evidence that the openness-growth link may be dependent on the rate of trading partner growth. In particular I show that tariff protection, although not significantly related to growth in an average sense, may to some extent insulate countries from effects of fluctuations in the rate of trading partner growth. I investigate the sensitivity of each set of results, both to changes in the set of conditional variables and to changes in the level of development of the countries in the sample. I also investigate some of the difficulties associated with measuring openness, paying attention in particular to the shortcomings of David Dollar's distortion measure of openness. I would like to acknowledge the valuable guidance I received from my three supervisors at the School of Economics and Finance at Victoria University - Geoff Bertram, Chirok Han and Paul Tompkinson.