Abstract
Conventional economic wisdom maintains that the reduction of domestic import restrictions assists in the development of less developed countries. But far from being a settled debate, the empirical research on tariffs and economic growth is much more controversial than is commonly recognized. In fact, so contentious and unsettled is this mode of inquiry that the research of some scholars directly contradicts the findings of others. In light of this difficulty encountered by researchers, the current study argues that the tariff~growth link is best analyzed by exploring the conditional effect of import restrictions on the development of low-income countries. Utilizing a panel dataset with information for 69 less developed countries, the results of this investigation show that tariff interactions with domestic investment and labor participation, respectively, augments the growth-generating impact of these variables. In addition, the constituent terms reveal that domestic investment and labor-force participation produces robust negative associations with economic growth when removing their tariff contingent effects. Taken as a whole, the evidence illustrates the value of exploring the indirect relationship between tariffs and economic growth as well as the potential usefulness of restrictive import policies for development in the periphery.
Highlights
Conventional economic wisdom maintains that the reduction of domestic import restrictions assists in the development of less developed countries
The pair-wise correlations summarized in Table 1 shows that secondary education, domestic investment, and manufacturing, are significantly correlated with economic growth
Beginning with model 1, which serves as this study's baseline model, the results clearly show that tariffs are not a robust predictor of economic growth in less developed countries (LDCs) during the period explored
Summary
Conventional economic wisdom maintains that the reduction of domestic import restrictions assists in the development of less developed countries. Open economic policies are considered especially important for less developed countries (LDCs) given their propensity to assist in the transfer of technology, the diffusion of know-how, and the exploitation of comparative advantages (Delong and Summer 1993; Grossman and Helpman 1994; Sachs and Warner 1995). This belief is apparent in work of prominent economists and in the policy prescriptions endorsed by the world's most influential global governance institutions. There seems to be a widely held supposition that trade liberalization is the only way the developing world can escape from the bondage of
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