Trade Openness and Economic Growth: Empirical Evidence from Transition Economies

The relationship between trade openness and economic growth is ambiguous from both theoretical and empirical point of view. The theoretical propositions reveal that while trade openness leads to a greater economic efficiency, market imperfections, differences in technology and endowments may lead to adverse effect of trade liberalisation on individual countries. In this chapter, we re-examine the empirical evidence pointing to the benefits of trade liberalisation and bring theoretical issues on possible adverse effect of openness to the fore. It has been argued that ‘passive’ trade liberalisation may not necessarily lead to positive economic outcomes, particularly in less advanced transition economies. Considering the empirical work on the matter, a lot of controversies are related to measurement issues. We find that openness measured by trade intensity indicators may lead to misleading conclusions about the trade growth nexus. Hence, the discussion of policy implications regarding the positive influence of trade barriers on economic growth goes well beyond the context of transition.

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