Structural Change and Patterns of International Trade

This paper focuses on economists' understanding of the basic determinants of trade patterns and, in particular, on the manner in which these underlying factors change over time and are affected by various policies. A brief survey contrasts the determinants of the structure of trade emphasized by the Ricardian, Heckscher-Ohlin, and imperfect competition models and discusses how well the predictions of these various theories are supported by empirical evidence. The main conclusion of the survey is that trade economists have been reasonably successful in explaining the structure of trade at any point in time but much less successful in understanding how the determinants of the patterns of trade change over time. This inability to explain how the basic determinants of the structure of trade change over time can lead both to poor predictions and bad policy advice. Given the increased interest in long-term shifts in trading structures, it is argued that trade economists should enlarge their analytical framework by endogenizing to a greater extent the basic economic factors determining these shifts. They must also recognize the endogenous nature of trade policies in their models, if they are to carry out their predictive and evaluative roles in the best possible manner.

Openness and Growth: What's the Empirical Relationship?

There is still disagreement among economists concerning how a country's international economic policies and its rate of economic growth interact, despite a number of multi-country case studies utilizing comparable analytical frameworks, numerous econometric studies using large cross-country data sets, and important theoretical advances in growth theory. This paper briefly surveys this literature and points out the main reasons for the disagreements. Particular attention is given to an important study by Francisco Rodriguez and Dani Rodrik (2001) criticizing the conclusion of a number of recent multi-country statistical studies that openness is associated with higher growth rates. Rodriguez and Rodrik show that openness simply in the sense of liberal trade policies seems to be no guarantee of faster growth. However, the conclusion of most researchers involved in either country studies or multi-country statistical tests that lower trade barriers in combination with a stable and non-discriminatory exchange-rate system, prudent monetary and fiscal policies and corruption-free administration of economic policies promote economic growth still seems to remain valid.