Export, Import, Productivity and Growth: A theoretical and empirical study of an endogenous relationship

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Numerous studies in the international economic literature suggest that foreign trade has a large positive effect on growth. From the theoretical aspects there are several reasons to be¬lieve in both export- and import-led productivity growth as well as productivity-led exports. The empirical results have been mixed, with earlier studies indicating a strong relationship and more recent studies that question the exogeneity assumption, finding endogenous results in several directions. In this study I develop a theoretical model, based on Aghion and Howitt’s (1990) Schumpeterian framework, which explain important parts of the diverging results by showing that trade can affect the incentives and probabilities for innovations. I also investigate the relevance of the relationship between aggregated exports, imports and TFP in a Johansen approach for cointegration with error correction models and short-run Granger cau-sality tests, for five OECD countries. I conclude that there is some weak support of long-run relations in all except two cases, and that the strong support for trade induced productivity en-hancements cannot be found. The results are generally varying between countries and do not get more conclusive when studying the short-run effects. The heterogeneous results from this study therefore tend to question the previous assumption that trade, and especially export, positively affects productivity growth.

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