Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence

TLDR

A large empirical literature affirms that lower trade barriers are associated with faster economic growth. This study questions whether lower trade barriers truly drive faster growth, arguing that methodological flaws in prior work leave the relationship uncertain. The authors review key empirical studies by Dollar, Ben‑David, Sachs & Warner, Edwards, and Frankel & Romer to assess their methodologies. The review reveals that openness indicators are unreliable, methods are flawed, and overall evidence shows little link between lower trade barriers and higher growth.

Abstract

Do countries with lower policy-induced barriers to international trade grow faster, once other relevant country characteristics are controlled for? There exists a large empirical literature providing an affirmative answer to this question. We argue that methodological problems with the empirical strategies employed in this literature leave the results open to diverse interpretations. In many cases, the indicators of openness used by researchers are poor measures of trade barriers or are highly correlated with other sources of bad economic performance. In other cases, the methods used to ascertain the link between trade policy and growth have serious shortcomings. Papers that we review include those by Dollar (1992), Ben-David (1993), Sachs and Warner (1995), Edwards (1998), and Frankel and Romer (1999). We find little evidence that open trade policies-in the sense of lower tariff and nontariff barriers to trade-are significantly associated with economic growth.