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Does trade composition influence economic growth? Time series evidence for 28 OECD and developing countries

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  • Joshua Lewer
  • Hendrik Van den Berg

Abstract

This paper is an empirical test of the hypothesis suggested by Mazumdar (1996), namely, that the composition of trade determines the strength of the 'engine of growth'. Mazumdar suggested that, within the framework of the Solow model, the composition of trade affects the medium-run transition to the steady state. The composition of trade matters because the price of capital is affected by whether a country exports or imports capital goods. Using unpublished SITC data, we create two international trade composition variables to test this hypothesis for 28 developed and developing countries. We test single-equation, simultaneous-equations, and panel data models with time-series data. All modern time-series procedures are rigorously applied. The results are supportive of the hypothesis; countries that import mostly capital goods and export consumer goods tend to grow faster than countries that export capital goods. There are important implications for developing countries. By focusing on their comparative advantage in producing labour-intensive consumer goods, developing countries will enhance their economic growth more than conventional models suggest. In addition, ceteris paribus, developing labour-abundant and consumer goods-exporting economies will grow faster than developed capital good exporters.

Suggested Citation

  • Joshua Lewer & Hendrik Van den Berg, 2003. "Does trade composition influence economic growth? Time series evidence for 28 OECD and developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(1), pages 39-96.
  • Handle: RePEc:taf:jitecd:v:12:y:2003:i:1:p:39-96
    DOI: 10.1080/0963819032000049150
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    Citations

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    Cited by:

    1. Léonce Ndikumana & Mina Baliamoune-Lutz, 2007. "The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries," UMASS Amherst Economics Working Papers 2007-05, University of Massachusetts Amherst, Department of Economics.
    2. David Audretsch & Mark Sanders & Lu Zhang, 2021. "International product life cycles, trade and development stages," The Journal of Technology Transfer, Springer, vol. 46(5), pages 1630-1673, October.
    3. Michael Peneder, 2005. "Tracing empirical trails of Schumpeterian development," Springer Books, in: Uwe Cantner & Elias Dinopoulos & Robert F. Lanzillotti (ed.), Entrepreneurships, the New Economy and Public Policy, pages 203-221, Springer.
    4. Dalia Bernatonyte, 2015. "Estimation Of Export Specialization: Lithuanian Case," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 10(3), pages 129-138, September.
    5. Saida Daly & Nihel Benali & Manal Yagoub, 2022. "Financing Sustainable Development, Which Factors Can Interfere?: Empirical Evidence from Developing Countries," Sustainability, MDPI, vol. 14(15), pages 1-22, August.
    6. Mirajul Haq & Muhammad Luqman, 2014. "The contribution of international trade to economic growth through human capital accumulation: Evidence from nine Asian countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-13, December.
    7. Milovanović Goran & Milanović Sandra & Radisavljević Goran, 2020. "Structural Changes in Foreign Trade as a Factor of Competitiveness of the Republic of Serbia," Economic Themes, Sciendo, vol. 58(2), pages 149-170, June.

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