How Large Is International Trade’s Effect on Economic Growth?

TLDR

International trade’s static welfare gains are small—about 1 % of GDP—yet the debate increasingly links free trade to its positive impact on economic growth, though most studies emphasize statistical rather than economic significance. The study aims to quantify the magnitude of trade’s effect on economic growth. The authors systematically review empirical studies to assess the trade‑growth relationship. Empirical evidence shows that a 1 % rise in export growth raises GDP growth by 0.2 %, and compounding makes this effect crucial for human welfare.

Abstract

The estimated static welfare gains from international trade are very small, on the order of one percent of GDP. The case for free trade is therefore increasingly linked to trade’s apparent positive effects on economic growth. But how large are these growth effects? The vast empirical literature has emphasized the statistical significance, not the economic significance, of the trade‐growth relationship. This survey’s re‐examination of the empirical literature focuses on the size of the relationship between trade and growth. Our survey reveals that the many empirical studies are surprisingly consistent in terms of the size of the relationship: A one percentage point increase in the growth of exports is associated with a one‐fifth percentage point increase in economic growth. Given the power of compounding, the effect of trade on growth is very important for human welfare.