Trade, Regulations, and Growth
Trade does not stimulate growth in economies with excessive business and labor regulations. The authors examine the effect of openness on growth using cross-country regressions in both levels and changes. Results from the levels regressions imply t...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/04/3211227/trade-regulations-growth http://hdl.handle.net/10986/13889 |
| Summary: | Trade does not stimulate growth in
economies with excessive business and labor regulations. The
authors examine the effect of openness on growth using
cross-country regressions in both levels and changes.
Results from the levels regressions imply that increased
openness is associated with a lower standard of living in
heavily-regulated economies. Growth regressions confirm that
the effect of increased trade on growth is absent in these
countries. The authors also find that once they control for
the effect of trade on growth in heavily regulated
economies, the evidence that trade positively affects growth
is stronger than has been found in previous studies.
Excessive regulations restrict growth because resources are
prevented from moving into the most productive sectors and
to the most efficient firms following liberalization. In
addition, in highly regulated economies, increased trade is
more likely to occur in the wrong goods-that is, goods where
comparative advantage does not lie. The results imply that
countries must create a sound business environment before
trade can be used as an engine of growth. |
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