Measuring the Dynamic Gains from Trade

This article investigates the links between trade policy andeconomic growth in a panel of 57 countries between 1970 and1989. It develops a new measure of trade policy openness basedon the policy component of trade shares, using it in a simultaneousequations system to identify the effect of trade policy on severaldeterminants of growth. The results suggest a positive impactof openness on economic growth, with the accelerated accumulationof physical capital accounting for more than half the totaleffect; enhanced technology transmission and improvements inmacroeconomic policy account for smaller effects. This decompositionis robust with respect to alternative specifications and timeperiods. The article also successfully tests whether the modelexhaustively captures the effects of trade policy on growth.