‘International Trade and Economic Growth in Developing Countries’ Neil Foster
• Introduction by facilitating the transmission of technology across borders. •
It has long been thought that international trade can increase a country’s growth rate. Until recently however the argument for free trade was based upon static considerations of specialisation and the international division of labour. While shifting production more in line with one’s comparative advantage should raise income per capita, it does not have any implications for long-run growth. endogenous growth theory however has shown that outward orientation can potentially affect a country’s growth rate through several channels. In these models however there is no presumption that trade is good for growth. Growth can be lower under free trade, if a country’s comparative advantage lies in certain goods. This implication may be particularly relevant for developing countries (LDCs).
•
What Role does Trade Play in LDCs Growth?
In LDCs it is likely that R&D activity is limited. Trade can still improve a country’s growth rate however by allowing the
importation of capital and intermediate goods and by facilitating the transmission of
knowledge. Such knowledge can be used to adapt and imitate developed countries
The Term Paper on Why countries engage in international trade
This article at explaining why countries engage in international trade. Now days it is not uncommon to find that the main objective of a trade policy of almost all countries is to promote international trade. Countries have gone ahead to engage in trade negotiations all in the interest of enabling international trade. But then, why do countries engage in international trade? Why are there global ...
products. •
Why Study Trade and Growth?
Despite a vast empirical literature there is still no general consensus concerning the benefits from trade and the mechanisms through which these benefits are realised. The existing measures of openness have been criticised for
What Causes Growth in Endogenous Growth Models?
a number of reasons. They are not highly correlated with each other, they potentially measure a number of macroeconomic policies and the evidence concerning the direction of causality is not conclusive. Also the measures developed tend not to relate to the mechanisms through which endogenous growth theory suggests are important. Furthermore, empirical testing of endogenous growth theory is very much in its infancy, particularly with respect to
Recent developments in growth theory have considered various sources of long-run growth, each of which involves an externality
associated with some activity. Examples include, human capital accumulation through either learning by doing or education and technological advance through R&D activities. •
What are the Links between Trade and Growth?
trade and LDCs.
Trade influences a country’s growth rate by impacting upon the level of these activities and
International Trade and Economic Growth: The Role Of North-South Trade in Goods
•
Hypothesis
a
country
specialises
in
the
traditional
Developing countries can benefit from trade with more advanced countries by importing a greater variety and a higher quality of capital and intermediate goods that are used in final manufacturing production. •
manufacturing sector. Using this model we construct an empirical framework to predict imports of Northern manufacturing goods (taken to consist largely of capital and intermediate goods) to a sample of LDCs.
Background
Using actual and fitted values we construct a measure of openness to imports from the North and thereby a measure of access to the North’s capital and intermediate goods. Using this measure we test for a relationship between growth and openness to the North’s goods in a model of economic growth. •
In models of endogenous growth, trade can impact upon growth by allowing access to the innovative products of other countries. Since most LDCs do little if any innovation it is primarily through trade with developed
The Term Paper on Economic Growth Trade Production Income
... grown. This implies huge growth in 'intra-industry trade' i.e. trade between same industry, different countries. Growth of trade has been helped ... raw materials, capital goods, etc. Worksheet 3 - Impact of Globalisation Average Living Standards of Different Nations To measure standards ... US$). Foreign exchange market valuations are not a good measure, PPP is better.2. Looking at aspects of typical ...
countries that they profit from higher levels of technological development. North-South trade in manufactured goods historically has consisted largely of capital and intermediate goods. We may expect therefore that LDCs who import more from the North benefit in terms of higher growth than those LDCs that are closed to international trade or who engage to a greater degree in South-South trade. •
Data
We predict manufacturing imports from 21 OECD countries to a sample of 52 LDCs over a 15-year period (1976-1990), using panel data techniques. To predict such imports we use a variety of measures of factor endowments and gravity determinants of trade (examples
include the capital stock, skilled/unskilled labour, area, distance from exporter and the
Method
GDP and GDP per capita of the importer and exporter).
The growth model estimated is similar to that estimated by Barro (1998).
In addition to our measure of openness to northern imports the model includes initial GDP, population
We develop a model of endogenous growth in which the use of an expanding variety of intermediates (which can be taken to be capital also) in manufacturing can enhance growth. In the model trade can affect growth by impacting on the number of available varieties of intermediates. Trade can reduce growth
growth, investment, measures of human capital, variables. political variables and regional
however if comparative advantage dictates that
•
Results
Using a measure of the extent of departure of a country’s trade from that predicted by these determinants to measure trade restrictions we find that such restrictions can impede growth. Those countries that are more open to imports from the advanced countries benefit in terms of higher growth. The likely mechanisms through which such benefits accrue are through the use of a higher quality and a wider variety of capital goods and intermediates and through knowledge spillovers, possibly
The Term Paper on Free Trade Capital Model Labor
The factor proportions model was originally developed by two Swedish economists, Eli Heckscher and his student Bertie Ohlin in the 1920 s. Many elaborations of the model were provided by Paul Samuelson after the 1930 s and thus sometimes the model is referred to as the Heckscher-Ohlin-Samuelson (or HOS) model. In the 1950 s and 60 s some noteworthy extensions to the model were made by Jaroslav ...
The model of trade developed explains a large proportion of the cross-country variation in imports from the North. The gravity
determinants of trade all tend to be highly significant and explain the greatest part of the variation. Factor endowments however play an important role in predicting imports in a way that is consistent with the theoretical model developed. The measure of openness that we construct is not highly correlated with various other measures of openness. This however is a common feature of openness measures
encouraging imitation.
(Pritchett, 1995).
The measure developed also ranks a number of African countries as relatively open. This doesn’t seem to support conventional wisdom, but adds some support to Coe and Hoffmaister (1998) who argue that after controlling for various factors the average African country trades more than would be expected from their model. The model of growth estimated explains a great deal of the cross-country variation in growth rates. Conventional variables in the growth regression tend to be significant and of the correct sign. Furthermore, the measure of openness included is also highly significant and of the correct sign. This result is robust to the inclusion of various additional variables in the growth model. •
Conclusions factor endowments are LDCs important trade with and gravity in factors
Both
determinants predicting
advanced
countries. We find that these factors can explain a great deal of the trade between these two sets of countries.
International Trade and Economic Growth: The Role Of North-South Trade in Ideas
• Hypothesis countries can improve their advanced production. • Method products in manufacturing
Developing
growth rates through trade by importing knowledge from more advanced countries. The benefits may occur through increased
We test for the effects of foreign knowledge in a simple model of economic growth. More specifically, we test for the growth enhancing effects of the trade weighted knowledge stocks of a small number of developed countries to a
The Term Paper on Direct Investment Countries Growth Developed
"The transnational corporate system in the late 1990 s" by Robinson Rojas (1997) Transnational direct investment in less developed societies in the 1990 s is consolidating further the historical regional spheres of influence by the former colonial powers. By and large, Latin America, Africa, Asia and Eastern Europe are becoming more than ever "spheres of control of production and trade" by the ...
innovation, imitation or the use of such knowledge in production. •
Background
sample of LDCs. Knowledge stocks are constructed for the developed countries and weighted by some measure of trade or trade intensity. The question of how knowledge stocks should be weighted has been the subject of much debate (Keller, 1998; Lichtenberg and van P. Potterie, 1998; Coe and Hoffmaister, 1999).
We specify a number of alternative weights to test the sensitivity of our results to the weighting. •
Endogenous growth theories suggest that knowledge spillovers are an important
determinant of growth. International trade by facilitating knowledge spillovers would
therefore be expected to enhance growth. The role of knowledge spillovers may be more applicable to developed countries than LDCs. In endogenous growth models it is expected that firms use this knowledge in their R&D efforts to create new or improved products. Since LDCs undertake little if any R&D we expect that knowledge spillovers are limited in these countries. Evidence has been found suggesting that spillovers of knowledge, measured using cumulative past R&D expenditure, do exist between developed economies. Evidence has also been found however suggesting that spillovers are significant between developed and developing economies (Coe, Helpman and Hoffmaister; 1997).
Since innovation is limited in LDCs, it is more likely that knowledge spillovers benefit LDCs by encouraging the imitation and adaptation of the developed countries products or by the direct use of
Data
We construct knowledge stocks for five OECD countries using past R&D expenditures. These five countries have by far the highest constructed knowledge stocks. These are weighted by measures of the level of imports and import shares of the LDC to give a measure of access to foreign knowledge. The weights are also scaled by country size. There are 71 LDCs in our sample. Data is collected for three five year time periods on foreign knowledge stocks, GDP growth, investment, human capital and initial GDP.
•
Results
capability’ was developed specifically to take account of these factors. Other factors that may be important include trade composition; it may be that imports of only certain goods embody the knowledge of the developed country. The domestic
The Essay on Develop a stock market
(a) Dependable law and regulations The existence of dependable laws and regulations, not only from the government but also from the enterprises themselves is a necessary conditions since these all the organizations to compete and cooperate with the oversea and worldwide companies. (b) Resolution of policy risk Investor confidence in reliable property right and stable, market-oriented policies are ...
The model is estimated using panel data techniques. We find that conventional
variables included in our growth regression are all significant and of the correct sign. In terms of the results on the foreign knowledge stock variable we find no evidence of significant knowledge spillovers to our full sample of countries. This result is robust to whichever weighting is used on the knowledge stocks. What we can show however is that for certain regions in our sample there does indeed exist positive knowledge spillovers, suggesting that they may not occur automatically but are reliant on certain conditions being in place in an economy. •
enforcement of property rights may also be important; a lax enforcement of property rights may be conducive to imitation of the developed countries products. Alternatively, it may be that only countries who themselves have a domestic R&D sector are be able to benefit from knowledge spillovers; the
knowledge being used in R&D to develop new products.
Conclusions
The evidence in favour of North-South knowledge spillovers in the existing literature is mixed and the subject of much debate. We find no evidence of foreign knowledge spillovers in our full sample of countries, using a variety of specifications for foreign
knowledge, suggesting they are not an important determinant of growth in LDCs. We can show that for certain regions spillovers do indeed exist; these regions are Asia and Europe. The results are suggestive of the fact that certain conditions need to be in place within a country for spillovers to take place. Further research looking to identify these conditions is required. A number of possible conditions are likely to be important. It has long been considered vital to have a stable economic environment and high levels of education and investment for spillovers to take place. The term ‘social
