Trade Structure, FTAs, and Economic Growth

Abstract

What is the relationship between trade and economic growth? Does trade positively affect economic growth? Owing to the ambiguity of this relationship, the empirical relationship has remained open (Rodriguez and Rodrik, 2001; Baldwin, 2003). This paper introduces "trade structure" variables, borrowed from the paper of Lederman and Maloney (2003), and applies them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991-2004 is used to verify the validity and robustness of the relationship. Trade structure variables show strong evidence of positive effects on growth. Free-trade agreements/areas (FTAs) also enhance economic growth. East Asia shows a different relationship between trade and growth than the world and reflects a weaker role of FTAs in its growth.