Explaining growth? The case of the trade–growth relationship

Abstract

This paper provides a critical analysis of the modelling strategies adopted in the trade–growth literature. Despite a huge number of econometric studies, there is a growing dissatisfaction with such studies and serious questions over what exactly has been learnt from them. Econometric work has been criticized for, amongst other things, its lack of clear relationship to underlying theory and questionable use of proxies for trade policy. It is frequently unclear what hypothesis is being tested in this literature. Universalist assumptions of the effects of trade policy have been undermined by earlier confident predictions of the effects of trade liberalization having not been borne out systematically by the past quarter century experience. This paper argues that the results of econometric analyses of the trade–growth relations are indicative of fundamental difficulties with the cross-country modeling strategy. The failure to find a clear trade–growth relationship consistently across countries and between time periods could, though, provide the starting point for further investigation. Alternative modelling strategies are considered here. An incipient research agenda has proposed a return to the comparative case study approach, incorporating the institutional and historical specificities of each country and thereby (implicitly or explicitly) rejecting universalist or homogeneity assumptions. Nevertheless, such a careful work has not been able thus far to provide a clear research agenda; there has been no consensus on the conclusions or methods of this approach in relation to trade–growth linkages. Whilst this has undoubtedly stimulated further research it has yet to produce a clear corpus of alternative work. This paper provides a critical analysis of the strategies adopted to address the theoretical and econometric critiques advanced of this work.