Testing for Trade-induced Investment-led Growth

Richard Baldwin and Elena Seghezza ()

No 1331, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Many studies have found a positive correlation between trade and growth, but do not attempt to identify the economic mechanisms involved. This paper attempts to identify one of the mechanisms linking trade and growth. In particular, we present a novel theoretical model that establishes a link between trade liberalization and investment-led growth. Estimating equations are derived from the model and estimated with three-stage least squares on a cross-country data sample. We find that domestic protection depresses investment and thereby slows growth. Foreign trade barriers also lower domestic investment, but the anti-investment effect is weaker and is less robust to sample and specification changes.

Keywords: lnvestment-led Growth; Trade and Growth (search for similar items in EconPapers)
JEL-codes: F10 F43 (search for similar items in EconPapers)
Date: 1996-02
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Citations: View citations in EconPapers (43)

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Related works:
Journal Article: Testing for Trade-Induced Investment-Led Growth (2008)
Working Paper: Testing for Trade-Induced Investment-Led Growth (1996)
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