The empirics of trade and growth: where are the policy recommendations?

Existing literature repeatedly documented a strong correlation between trade and growth. It has also shown a causal effect of imports (though not necessarily exports) on growth in simultaneous equation models but to a lesser extent in Granger-causality tests. Export and import taxes have sometimes been found to negatively affect growth.

Drawing policy conclusions from these general findings for a particular country is difficult not only because of the contradictory results but also because of potential second best world effects and the implied endogeneity of trade policy. Policy recommendations for a specific country require a careful analysis of market and institutional arrangements and can not be based on the existing cross-country literature.

• Primary Source

http://ec.europa.eu/comm/economy_finance/publications/economic_papers/2004/ecp204en.pdf http://ec.europa.eu/comm/economy_finance/publications/economic_papers/2004/ecp204en.pdf

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