Trade Openness and Economic Growth: Evidence from Asia and Latin America

Abstract: This thesis focuses on how trade openness influences the average annual growth rates of developing countries in Latin America and Asia. We find that there is a positive correlation between trade openness and economic growth and this indicates the positive impact that can be made by governments through efforts to stimulate growth with trade. We construct a simple regression model to highlight the positive association between trade openness and economic growth and add several control variables such as initial GDP per capita and gross domestic investment. We use a sample of 33 developing countries in Asia and Latin America to test the relationships. Our results confirm a positive relationship between trade openness and growth, as well as a negative correlation between initial GDP per capita and economic growth which means that poorer countries grow faster. We also find a positive correlation between the level of investment and growth. In addition to testing the relationship between trade openness and rate of growth generally, we also conduct a regression to examine if there is a significant difference in this effect between Asia and Latin America. We introduce regional dummy variables and interaction terms into the new regression and find that the impacts of trade on growth are not significantly different between these two regions.