Openness, productivity and growth: What do we really know?

Abstract

Comparative data for 93 countries are used to analyse the robustness of the relationship between openness and total factor productivity growth. Nine indexes of trade policy are used to investigate whether the evidence supports the view that total factor productivity growth is faster in more open economies. The results are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries experienced faster productivity growth. Although the use of instrumental variables help dealing with endogeneity, issues related to causality remain somewhat open, and require time series analyses to be adequately addressed.