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Trade-Growth Nexus and Industrial Policy

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Industrial Policy and Sustainable Growth

Part of the book series: Sustainable Development ((SD))

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Abstract

How trade openness results in higher economic growth has been one of the most contested issues both theoretically and empirically. The mainstream views that more trade does help in achieving higher growth. However, there has been growing consensus in recent years on the importance of linking trade-growth nexus with the complementary regulatory policies. In this chapter, we have reassessed the role of complementary reforms, such as labor market flexibility, competitive industrial policy (CIP), and business environment, in enhancing the benefits of trade on growth.

Our results based on both Quantile and GMM regression models, employing data on 54 developing countries for the 2006–2013 period, do support the fact that trade openness does contribute to faster growth. However, our empirical results also support that the marginal impact of openness is significantly enhanced with the implementation of complementary regulatory framework that includes competitive business/investment environment and more flexible labor market conditions.

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Author information

Authors and Affiliations

  1. Department of Economics, Bilkent University, Üniversiteler, 6800 Bilkent, Ankara, Turkey

    Syed F. Mahmud

  2. The Statistical, Economic and Social Research and Training Center for Islamic Countries, Kudüs Cad. No:9 Diplomatik Site, 6450, Ankara, Turkey

    Davron Ishnazorov

Authors
  1. Syed F. Mahmud
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  2. Davron Ishnazorov
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Corresponding author

Correspondence to Syed F. Mahmud .

Editor information

Editors and Affiliations

  1. Center for Industrial Policy and Development, Istanbul Commerce University, Istanbul, Turkey

    Murat A. Yülek

Appendices

Sources and Explanation of Variables

Variable

Definition and construction of variable

Source of data

GDP per capita (y)

Log of per capita GDP

World Development Indicators (2013)

Trade openness (trade)

Two measures: Trade to GDP and Index of Tariffs

World Development Indicator (2013) and www.heritage.org

Financial depth

Credit to private sector to GDP and number of bank branches per 100, 000 have been taken to proxies to financial openness

World Development Indicator (2013)

Physical capital (cap)

The data on capital series is not directly available. Therefore, the researchers use perpetual inventory methodology for generating the capital series. We also use the same methodology for each country. For this purpose the initial value is calculated by assuming 4% deprecation

Data on investment is taken World Development Indicators (2013)

Inflation rate (interest)

Inflation is calculated by taking the log difference of consumer price index numbers

The data on consumer price index number is from World Development Indicators (2013)

FDI

Foreign Direct Investment

World Development Indicators (2013)

Population growth

Annual growth of population in percentage

World Development Indicators (2013)

Governance

Here we use composite index of governance (PRS) based on different indicators: Voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, control of corruption

World Development Indicators (2013)

List of Countries

Albania

Madagascar

Algeria

Malaysia

Argentina

Mexico

Armenia

Moldova

Azerbaijan

Mongolia

Bahamas, The

Namibia

Bolivia

Nigeria

Botswana

Oman

Brazil

Pakistan

Bulgaria

Panama

Cameroon

Paraguay

Chile

Peru

Colombia

Philippines

Costa Rica

Poland

Croatia

Romania

Ecuador

Russian Federation

Egypt, Arab Republic

Senegal

El Salvador

Serbia

Gabon

South Africa

Guatemala

Tanzania

Honduras

Tunisia

India

Turkey

Indonesia

Ukraine

Iran, Islamic Republic

United Arab Emirates

Jordan

Uruguay

Kazakhstan

Vietnam

Kenya

 

Lebanon

 

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Mahmud, S.F., Ishnazorov, D. (2018). Trade-Growth Nexus and Industrial Policy. In: Yülek, M. (eds) Industrial Policy and Sustainable Growth. Sustainable Development . Springer, Singapore. https://doi.org/10.1007/978-981-10-5741-0_4

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