Romer was right on openness and inflation: Evidence from Sub-Saharan Africa

Faqin Lin, Dongzhou Mei, Huanhuan Wang and Xi Yao
Additional contact information
Dongzhou Mei: Central University of Finance and Economics (CUFE)
Huanhuan Wang: East China Normal University
Xi Yao: Peking University

Journal of Applied Economics, 2017, vol. 20, 121-140

Abstract: Romer (1993) documents a negative relation between trade openness and inflation and offers an explanation based on time-inconsistency of monetary policy, but subsequent research casts doubt on the negative relationship and the explanation. This paper contributes to this debate by estimating the effect of openness to international trade on inflation with panel data from Sub-Saharan Africa. Employing instrumental variable techniques that correct for endogeneity bias of trade openness, the empirical evidence suggests that within-country variations in trade openness restrict inflation: a 1 percentage point increase in the ratio of trade over gross domestic product is associated with a decrease in inflation of approximately 0.08 percentage points per year. These results are robust to additional controls, different measurements of trade openness and alternative instruments. Finally, we inspect the timeinconsistency mechanism of the negative-relationship between trade openness and inflation.

Keywords: trade openness; inflation; instrumental variables (search for similar items in EconPapers)
JEL-codes: C23 E31 E52 F41 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://ucema.edu.ar/publicaciones/download/volume20/lin.pdf Paper (application/pdf)

Related works:
Journal Article: Romer Was Right on Openness and Inflation: Evidence from Sub-Saharan Africa (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:20:y:2017:n:1:p:121-140

Access Statistics for this article

Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb

More articles in Journal of Applied Economics from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().