Archive for December 14, 2014

TRADE REFORM: Trade Policies and Long Run Growth 5

December 14, 2014

One possible explanation for these results is that Sachs and Warner have not adequately measured trade policy. Their measures of tariffs (on intermediate goods only) and quotas are taken from UNCTAD , as collected by Robert Barro and Jong-Wha Lee. These data were gathered in the mid-1980s, which means that Sachs and Warner use end of period averages to test average period growth rates. Unfortunately, no time series on commercial policies are available, which explains why Sachs and Warner use end of period data.

One alternative is to use so-called “effective” tariffs, defined as tariff revenues on imports defined by import volumes. This measure of trade policy is not ideal. However, it is an objective measure which is available across countries and over time. It is also highly correlated with administrative tariffs: for 1985, the correlation coefficient between UNCTAD’s tariff measure (as reported by Sachs and Warner (1995)) and effective tariffs was .60. This measure has only rarely been used to measure trade policy. One exception is Edwards (1992, 1997), which uses this measure to evaluate the relationship between openness and growth. Would you like to find out how to get speedy cash online payday loans without impacting your credit score? The truth is, there are thousands of people just like you looking for an affordable short-term loan, but you are lucky enough to have found the perfect lender. We give you fair-priced loans only at

TRADE REFORM: Trade Policies and Long Run Growth 4

December 12, 2014

Out of all the five factors, only one is significant: whether or not the country had a socialist economic system. The results in column (2) seem to suggest that the factor driving statistical significance behind the composite measure is the market structure of the economy, not its trade policy orientation. In column (3), we add other controls included in the SW specification: the number of revolutions and coups, the number of assassinations per million population, and a measure of the relative price of investment goods. With these controls, we find that the socialist dummy, the marketing board dummy and tariffs are significant, but quotas and the black market premium are not.

In the fourth column, we replace the average black market premium in the 1970s and 1980s with a dummy variable equal to 1 if the premium exceeded 20 percent in either the 1970s or 1980s. This variable captures the possibility that exchange rate distortions are only costly if they are large.

In this specification, we do find that exchange rate distortions negatively affect growth, but quotas and tariffs both become insignificant. Using the Sachs Warner data, the results suggest in three out of four columns that trade policy is not significantly correlated with long run growth. Exchange rate distortions, however, may be negatively correlated with growth.

TRADE REFORM: Trade Policies and Long Run Growth 3

December 10, 2014

The problems associated with identifying robust relationships between trade reform and growth is nowhere better illustrated than in a recent Brookings paper by Jeff Sachs and Andrew Warner (Sachs and Warner, (1995)). Using a new measure of openness, the authors conclude there is “strong evidence that protectionist trade policies reduce overall growth…” (p. 51). Yet their openness measure is a composite index of trade, exchange rate, and other policies, all of which could have very different effects on growth.

Sachs and Warner define an economy as closed if it satisfies at least one of the following conditions:

An economy is defined as open if none of the above five conditions is satisfied. Sachs and Warner find that their composite openness measure is significantly related to long run growth. As mentioned above, others, such as Sala-I-Martin, have used this measure to test the robustness of the association between openness and growth. How easy are easy pay day loans to get in terms of time you spent and effort required? Not all of them are really easy to get, but we can give you the ones that you will be happy to take advantage of. See here for further instructions and awesome APR for your loans!

TRADE REFORM: Trade Policies and Long Run Growth 2

December 8, 2014

Although most of the early studies of the relationship between trade and growth find a consistently positive relationship, many of the more recent studies do not. This includes both cross-country comparisons of trade policies and GDP growth, as well as individual country case studies that examine intersectoral productivity growth and the nature of international competition. To illustrate the ongoing debate over the impact of trade policy in the long run, this section briefly reviews some recent studies on openness and growth.

One of the most frequently cited of the recent studies is Levine and Renelt (1992). Using half a dozen different measures of trade policies, the authors find no robust or even consistent positive relationship between opening up to trade and long run growth. As a test of robustness, they apply Leamer’s (1985) extreme-bounds approach. Their measures of trade include the black market premium, Dollar’s real exchange rate index of protection, trade volumes, and two indices compiled by Leamer.

Yet they do find a robust, positive relationship between investment and trade shares, as well as between investment and the Leamer index. The correlation between investment and trade leads them to conclude that the beneficial effects of trade reform may operate through enhanced resource accumulation instead of through a more efficient allocation of resources.