A Critical Political Economy of Trade Theory and Practice
Chapter 6: Evaluating trade and growth
This chapter discusses the relationship between trade and growth. Its main purpose is to evaluate big claims made in the previous chapters, that trade is good for growth or that it is bad, at least for poorer countries or those selling primary products. It also considers country size, the role of trade balances and the implications of trading with different types of country. It begins with a brief review of some recent literature on trade, trade barriers and growth. The chapter then reports the results of some tests, conducted primarily drawing on data from the World Bank (WB 2014), available on an annual basis from 1960. The tests broadly confirm that there are weak, positive associations between trade openness, and trade opening, and growth. There is some evidence for this in aggregate, for rich and poor countries and for large and small ones. The chapter finds little evidence that a positive trade balance was conducive to growth, indeed one of the more remarkable findings is that a trade deficit appears to be positively associated with both present and subsequent growth. There is also some indication, particularly in the 1970s, that a positive balance in primary products had a negative impact, as various theories discussed in Chapter 4 anticipated, but this is not confirmed with any level of statistical confidence in subsequent decades. In the most recent decades, poorer countries, particularly in Asia, grew more quickly than rich ones.
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