Does trade cause divergence? Dynamic panel data evidence

Gabriel Felbermayr

No 2004-07, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: This paper argues that the empirical trade-growth relationship should be modelled using a dynamic panel data approach and that it is best estimated with Blundell and Bond’s (1999) system-GMM estimator. This procedure remedies some econometric problems such as regressor endogeneity, measurement error and weak instruments, and allows to control for time-invariant country-specific effects such as institutions or geography. The findings are largely plausible and satisfy intuition better than previous results. They confirm the existence of a strong causal effect of trade on growth but fail to find evidence for trade as an independent factor of divergence. Hence, one cannot blame trade as such for the disappointing performance of initially poor countries.

Keywords: growth empirics; trade; convergence; generalized methods of moments (search for similar items in EconPapers)
JEL-codes: F43 O40 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-afr and nep-dev
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Persistent link: https://EconPapers.repec.org/RePEc:jku:econwp:2004_07

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