Trade and Growth AND Globalization and Inequality

Trade and Growth AND Globalization and Inequality - Trade...

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Trade and Growth – Extending the Debate Does Trade Cause Growth? Jeffrey A. Frankel; David Romer The American Economic Review (Jun., 1999) Summary Main problem with prior studies – The causal direction between trade and growth is ambiguous. In other words, does trade cause economic growth? OR does economic growth contribute to increased trading? In order to solve such a problem one would need to identify a construct that 1) unambiguously precedes both trade and growth and 2) can only contribute to growth through trade. Geography is the convenient construct Methodology Their trade equation includes only geographic characteristics: countries' sizes, their distances from one another, whether they share a border, and whether they are landlocked. Cross country study Empirical Findings The relation between the geographic component of trade and income suggests that a rise of one percentage point in the ratio of trade to GDP increases income per person by at least one-half percent Trade appears to raise income by spurring the accumulation of physical and human capital and by increasing output for given levels of capital Controlling for international trade, countries that are larger--and that therefore have more opportunities for trade within their borders--have higher incomes The point estimates suggest that increasing a country‘s size and area by one percent raises income by one-tenth of a percent or more
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This note was uploaded on 04/19/2008 for the course ECON 305 taught by Professor Souza during the Spring '08 term at Vanderbilt.

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Trade and Growth AND Globalization and Inequality - Trade...

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