The Trade-Growth Nexus: Evidence of Causality from Innovative Instruments for Trade

Ibrahim Nana, Sephooko Ignatius Motelle and Susan K. Starnes

No 10645, Policy Research Working Paper Series from The World Bank

Abstract: During the past decades, extensive literature has emphasized the role of both international trade and openness in fostering economic growth. Endogeneity bias is a nagging challenge for any empirical attempt to study the causal relationship between trade and economic growth. This study contributes to the existing stock of knowledge and helps to address these challenges by introducing new instrumental variables for trade. The study samples 197 countries over 1970–2020. The findings suggest that international trade has a positive and significant effect on gross domestic product per capita, which tends to be higher for emerging markets and development economies. Thus, the study provides an enhanced empirical foundation for the expectation that investments made to support trade are also good for economic growth, especially in emerging markets.

Date: 2023-12-13
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