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The relationship between trade and growth both theoretically and empirically
贸易和增长之间的理论和经验性关系
第二章
2.1引言
有许多研究表明了贸易和增长之间的理论和经验性关系。关于贸易和增长的理论性文学的起源有绝对的工作优势的和想对的优势，同时也有Hechscher-Ohilin模型和他们的追随者。另外一方面，理论性文学基本上是努力去寻找关于经济增长的外贸的地位或者是否在贸易和增长之间存在因果联系。
这一章里有四个部分。
2.2章解释了贸易理论。 2.3章解决了经济增长的理论性问题。2.4章是关于传输渠道。最后，理论性工作品的总结会在2.5章呈现。
2.2 贸易的理论
传统的贸易理论
从16世纪到18世纪，
商业主义统治了世界。根据这一理论，基于理性经济财富的一个国家权力，财富会被定义为持有贵金属。这一理论的贸易政策是黄金股票和一个有利的贸易平衡。
Adam Smith介绍了18世纪的绝对成本优势理论。当一个国家在一些产品生产上更具优势，
Chapter 2
2.1 Introduction
There are lots of studies which have investigated the relationship between trade and growth both theoretically and empirically. The origins of the theoretical literature about trade and growth are absolute advantage and comparative advantage as well as the Heckscher-Ohlin model and their followers. On the other side, empirical literature is basically trying to find the role of foreign trade on economic growth or whether there is a causal relation between trade and growth.
There are four more sections in this chapter. Section 2.2 explains the theories of trade. Section 2.3 deals with the theories of economic growth. Section 2.4 is about the channels of transmission. At last, a summary of empirical works is presented in section 2.5.
2.2 Theories of Trade
Traditional Trade Theory
From the sixteenth century to the eighteenth century, Mercantilism ruled the world. According to the theory, a country’s power based upon the rational economic wealth, where wealth was defined as the holding of precious metals. The trade policy of the theory was the stock of bullion and a favourable balance of trade.
Adam Smith introduced the Theory of Absolute Cost Advantage in the eighteenth century. When a country is more efficient in the production of some goods and less efficient in the production of other goods relative to another country, the former is said to have absolute advantage. Hence, the country specializes in the production of those goods in which it has absolute cost advantage and imports goods in which it has absolute disadvantage. This process increases world output and standard of living of the trading country. Criticism of this theory is such that it is based on labour theory of value which is an oversimplification of reality. To start it considers labour as the only factor of production. Moreover, there is no homogeneity and the cost of a good relies on the number of labour used in its production, together with the duration of embodied labour.
In nineteenth century, David Ricardo introduced the Theory of Comparative Advantage. In Ricardo’s world, it is believed that trade is determined by relative instead of absolute efficiency in production. When a country is more efficient compared to another country in every line of production, it is said that the former has comparative advantage. It is important to note that two countries will still benefit from trade no matter whether one has absolute disadvantage in all goods given the other one has comparative advantage in the production of one good. To criticize this theory, comparative advantage relies on comparative differences in productivity of labour. However, there is no clarification of the basis of these differences. Furthermore, there is no explanation on the ultimate determinants of comparative advantage.
Heckscher and Ohlin also contribute to Trade Theory and their work is more meaningful in this modern time. The Heckscher-Ohlin Theory states that countries should specialize and export goods that make more intensive use of more abundant resources, for the simple reason to reduce cost. Four important theorems can summarise the HO model:
The Heckscher-Ohlin theorem,
This theorem gives conditions under which: A country has a comparative advantage in the commodity that uses intensively the factor in which the country is relatively well endowed.
The Stopler Samuelson theorem,
It supplies conditions under which a rise of the relative price of a good increases the real return to the factor which is used intensively in the production of that good, and reduces the real return to the other factor.
The Rybczynski theorem,
The theorem states that at constant commodity prices, an increase in a factor of production causes a more than proportional increase in output that uses that factor intensively, and a decrease in output of the other factor.
The Factor Price Equalization theorem.
It states that the equality of relative commodity prices means that relative factor prices, and also real factor returns, are similar in the different countries. Therefore, trade in commodities is a perfect substitute for trade in factors, under the conditions of this theorem.
New Trade Theory
In 1970s, the difference between the prediction of free trade and real world trade flows was increasing more and more. As trade was rapidly increasing between industrial nations with similar economies and endowments of factors of production was a mystery. In many new industries, comparative advantage was not justified. It seemed that production and trade depended on chance. On the other hand, comparative advantage explains that countries trade mainly because of large unsimilarity in factor endowments and technology. However, the fact was not always true (Smith 1994). Moreover, according to Ricardo a country cannot have comparative advantage together with comparative disadvantage for a given good. It is impossible to neglect intra industry trade with any degree of confidence, though one allows for statistical confidence (Smith 1994).
To provide a better understanding about trade, using recent literature of international trade, the New Trade Theory has been developed by Dixit and Norman (1980), Lancaster (1980), Krugman (1979, 1980, 1981), Helpman (1981) and Eithier (1982). Generally, these models address the limitations of traditional theory by exploring trade realities. Hence, trade theory can be divided in two groups. First, traditional theory which includes the trade theories of Smith, Ricardo, Heckscher and Ohlin as mentioned before in section 2.2. Second is the New Trade Theory.
One major disagreement between traditional trade theory and new trade theory is associated to the policy recommendations required for industrial development. Traditional trade theory supports the fact that neutral incentives and Laissez Faire policies always allow industrial development. Furthermore, new trade theory gives more importance to specialisation because of increasing returns. This is done by implementing it in the models of imperfect competition.
2.3 Theories of Economic Growth
Now, let’s take a look at Growth Theories. The three Economic Growth Theories that still have believers are as follows.
The Classical Growth Theory comprises of the work of Adam Smith, David Ricardo, and Thomas Robert Malthus. Basically, it connects population growth to the productivity of labour. It states that an economy has subsistence level that it will revert to whenever there is a rise in productivity. If workers productivity increases across the nation through technological improvement, the population will simply increase until the productivity returns to its previous state.
The Neoclassical Growth Theory or the Solow-Swan Growth Model (1956) model, developed by Robert Solow and Trevor Swan, emphasizes the ease of substitution among factors of production which allows the economy to achieve steady-state growth. It suggests that accumulation of capital goods, growth in population and technological progress will lead to long run equilibrium of capital goods. This is because of flexibility in factor prices and substitution among factors. Moreover the natural rates of growth equal the warranted rates of growth. Economies attain a unique steady state as it operates under the assumption that population grows at a steady state as it operates under the assumption that population grows at a constant geometric rate and that a constant proportion of real income is saved.
The reason that Classical Growth Theory and Neoclassical Growth Theory are unsatisfactory a new line of growth theory has appeared which is New Growth Theory.
New Growth Theory is often called “endogenous” growth theory. The theory includes a mathematical explanation of technological advancement. It states that an increase in the pace of innovation and more investments in human capital can result in improvement in productivity. This theory was developed by Romer (1986), Lucas (1988) and Rebelo (1991). The theorists regard government and private institutions and markets that support and encourage innovation and instigate individuals to be inventive as very important.#p#分页标题#e#
The theory suggests that private investment in research and development is essential for technological progress. Protection of property rights and patent can be a source to encourage firms for research and development. It also shows that higher level of capital investment results in potential increasing returns and it is an indispensable element for growth.
Besides this, knowledge is vital for economic growth. Thus we should invest in human capital. Endogenous growth that emphasizes the role of international trade implies that high productivity can occur in initially poor countries due to the diffusion of knowledge being present in industrial countries.
Endogenous growth theory predicts positive externalities and spill-over effects from development of a high value added knowledge economy which is capable of developing and maintaining a competitive advantage in growth industries in the global economy.
2.4 Channels of Transmission
The theories are quite obvious about economic relationships. Yet, there is no clarification of the mechanism through which trade, industry and growth are connected.
International trade is considered as the fundamental transmission channel for international technological expansion, which ultimately enhances industrial development and improve standard of living of a nation according to the New Growth Theory. The idea behind is that countries which are more backward, absorb new ideas better and converge faster to international norms and gain from technological changes. Trade creates access to imported intermediate and capital goods which increase a country’s own resources’ productivity. Consequently, imported goods help local industries to imitate and employ technology of other countries. Apart from this, firms get the required raw material and industrial equipment which could not be produced locally. Foreign trade is an essential source of knowledge for most developing countries and it improves understanding about industrial development and encourages industrial expansion.
In addition, international trade instigates worldwide communication. It can be about a product design, organizational methods, etc. It is important to note that a better communication channel cause industry to prosper at a faster rate. According to Haierpoman Paul Krugman, international trade improves the optimal allocation of resources between knowledge production sector and material production sector. This in turn reduces wastage and increases output per head of a nation. The process of trade also generates economies of scale which allows further increase in industry’s profit and accumulation of capital goods.
Export expansion is said to be a major catalyst in improving productivity growth. Balassa (1985) argued that generally the production of exports goods is focused on those economic sectors which are already more efficient. Hence, export growth helps to concentrate investment in these sectors, which in turn increase the overall total productivity of the economy. Additionally export expansion may also relieve the foreign exchange constraint, allowing capital goods to be imported to boost economic growth.
Imports are one of the macroeconomic variables that may have an effect on the export economic growth linkage. In addition, importation of capital goods is necessary for enhancement of export and domestic production.
According to Chang et al. (2005), openness increases the efficient allocation of resources through comparative advantage, allows the diffusion of knowledge and practical progress and encourages competition in the domestic markets.
According to Were et al. (2002), exports of goods and services are known to be an important source of foreign exchange that eases the pressure on the balance of payments and create employment opportunities. In general, export activities are said to stimulate economic growth through several ways, for instance, through production and demand linkages and economies of scale because of larger international markets. Additionally, increased efficiency and adoption of advanced technologies embodied in foreign-produced capital goods, learning effects and improvement of human resources and enhanced productivity through specialization.
Export led growth is said to be an economic development strategy in which export growth plays a central role in a country’s economic growth. Even though practical evidence in support of export led growth may not be universal, it is generally accepted that carefully managed openness to trade through an export led growth strategy can be a channel to achieve rapid growth. (Giles and Williams, 2000).
According to Adenikinju and Olofin (2000), trade policy might affect industrial growth through several channels. Firstly, scale efficiency is increased by enlarging the domestic market with a less protectionist trade regime, which otherwise might be too small for efficient production of goods showing increasing returns to scale. Second, with a more liberal trade regime, there is increased competition from abroad and these forces domestic firms to adopt newer and more efficient technology in order to reduce inefficiency and waste. Next, it is argued that a freer economy eases foreign exchange constraints by most developing countries and hence enables a country to import raw materials and capital goods, which support Balassa’s view (1985). Finally, a more open economy results in a faster rate of technological progress. The last point has been the focus of the endogenous growth literature. The studies by Grossman and Helpman, 1989;1991 ; Lucas, 1988 ; and Romer, 1986;1990 show how trade liberalisation may increase growth rates in the long run by generating economies of scale, operating through research and development and knowledge spill-over, human capital accumulation and or by learning and doing.
The above factors (such as available raw material and industrial equipment, improved communication and enough knowledge required for industrial development and scope for industries to expand), are conditions likely to attract local and foreign investors. This encourages firms to conduct research and development. On the other face, we can find creation of jobs which reduces the rate of unemployment as industries expand. Hence national income is generated. This increases income per head of a developing country and brings many positive changes such as better sanitation, better health care service, adequate food provision, better education and many more because of the dynamic nature of an economy. In short we can say that people standard of living will enhance. Hence, it supports the statement of D.H. Robert Morisson that “trade is the engine of economic growth.”
2.5 Empirical Literature
Various research works have been effected empirically to provided a better understanding about the debate between trade and growth.
Parves Sultan (2008) conducts a study for Bangladesh using annual data for 1965 to 2004 which are collected from the World Development Indicators of the World Bank and from the International Monetary Fund (IMF). There are two main objectives of this paper. As stated in the paper, first to study the nexus among export, import, industrial value added and economic growth in Bangladesh. Finally, to empirically analyze and provide policy recommendations regarding the growth nexus of GDP with exports with exports, imports and industrial value added for Bangladesh. After econometric tests, the regression results show no convincing connection between trade growth and GDP growth for Bangladesh. Moreover, growth rate of industry value added enhance GDP more significantly compared to growth rate of export and import. The bivariate co-integration test proves co-integration and long run relationship between GDP and industry value added. Causality tests indicate that trade alone cannot furnish economic growth except industrial sectors considered.
The study by Sabri Azgun and Nurullah Ozbey (2010) determines the relationship of foreign trade sectors and economic growth for Turkey’s economy, making use of data for the period of 1980 to 2008. Tests like Engle-Granger (EG) causality test, Vector Error Correction Model, Augmented Dickey Fuller test and the Johansen co-integration test have been conducted. Export proves to be effective on economic growth. Among the different sectors analysed, industrial exports, capital goods and raw material imports are the determinants of economic growth. A one-way causality relationship from total imports to economic growth is found and there is a bi-directional causality relationship between capital and economic growth, consumption goods and raw materials imports affect economic growth positively. Therefore, it is concluded that foreign trade is an important factor in economic growth.
Guisan and Exposito (2008) analyse economic development, focusing on inter-sectoral relationship and the role of foreign trade in Philippines. Using data for the period 1991-2007 from the World Bank, they estimated a set of equations to explain the relationship between manufacturing development, foreign trade and economic development. Least Squares, Two stage Least Squares and in case of some degree of autocorrelation, Generalised Least Squares estimations are used in the paper. The results show a highly positive impact of industry on economic development.
In another paper, Guisan and exposito (2005) analyse the relationship between industry, foreign trade and non-industrial development in India, China and OECD countries for the period 1960-2002. They performed Granger tests and set up VAR models and their results support the positive role of imports to foster growth from the supply side. Exports are essential because they help to increase imports of goods and services necessary to foster domestic production and real income and also, exports may speed up industrial and non-industrial production from the demand side with a positive effect on real GDP.#p#分页标题#e#
In his study, Salih Katircioglu (2005) empirically investigates co-integration and causality relationship between economic growth as measured by real GDP growth and main sectors of Northern Cyprus, including agriculture, industry and services sector. The paper uses data for the period 1977 to 2002 and real GDP, real agricultural output, real industrial output and real services output in natural logarithms are taken as variables. The Augmented Dickey Fuller test, Phillips Perron(PP) test, Johansen Trace test and the Granger causality test are carried out in the study. There is the existence of a long run equilibrium relationship between GDP growth and the main sectors of the economy. The results also reveal that GDP growth gives a unidirectional causation to agricultural growth, while agricultural expansion did not. Additionally, GDP gives unidirectional causation to industry and services sector while agricultural production gives unidirectional causation to Northern Cyprus and services sector gives unidirectional causation to both agriculture and industry.
Ahmed and Dutta (2006) examined the relationship between trade policies and industrial growth in Pakistan. They declared a unique relationship among the aggregate growth function of industrial value added and its major determinants, for instance real capital stock, labour force, real exports, import tariff collection rate and the secondary school enrolment ratio.
Justin Yifu-Lin and Yongjun Li (2001) emphasise on the indirect impacts of exports via its influences on the consumption and investment so as to have a better view of foreign trade on economic growth in China. They analyse the impact of exports on economic growth through econometric methods. Using data for the years 1979 through 2000, they set up regression models. Due to the small sample size, the 2SLS method was adopted. According to their findings, a 10% increase in exports lead to a 1% increase in GDP on average in China in the 1990s when both the direct and indirect contributions are considered.
In their study, K.A.Al Mamun and H.K. Nath (2005) examine the time series evidence of exports led growth in Bangladesh. Using quarterly data for a period from 1976 to 2003, the unit root test, that is, the ADF test conducted show that industrial production index, exports of goods and services, and exports of goods only are integrated of order 1 [I(1)]. The EG co-integration tests reveal that there is a positive long run equilibrium relationship between exports and industrial production while the Error Correction Model(ECM) and the short run Granger causality tests show no causal relationship between export and industrial growth. The long run causality seems to run from exports to industrial production.
A similar study is conducted by Per-Ola Maneschiold (2008) to analyse the role of exports in the economic growth process in Argentina, Brazil and Mexico by causality tests within an Error Correction Model. Several tests like Augmented Dickey Fuller, Phillips Perron unit root tests, Zirot and Andrews unit root tests, Johansen co-integration test and Granger causality test between GDP and exports are conducted in the paper. Co-integrating relationship for Argentina and Mexico are found both in a pre-break and post-break period, where the pre and post break period refer to the introduction of the NAFTA. However, no such relationship is found for Brazil. The results also conclude that export is the leading variable in the co-integration between GDP and export in Argentina but that GDP is the leading variable in Mexico in both periods. In the post break, a bi-directional causal relationship exists for Argentina and Mexico but it is unidirectional from export to GDP in the pre break period. A unidirectional link from export to GDP is revealed from a short run causality test. Hence, the result that export causes growth support to the export-led growth hypothesis.
The study by Erdogan Kotil and Fath Konur (2010) investigate the direction of the relationship between the GDP and foreign trade for the Turkish economy in the period 1989 to 2007 by Granger causality tests. The empirical results suggest that all the variables used in this study present a unit root. The lag length taken as 3, it was found that there is a one way relationship from exports to GDP and from GDP to import. It should be noted that according to this paper, GDP and foreign trade tends to change together during the period analysed. Although Turkey was affected by economic crises during the years 1994-2001, the analysis shows that foreign trade continued to grow despite the fall in GDP. The study renders support to the export-led development hypothesis.
Huseyin Ozdeser and Ahmed Ozyigit (2007) analyse the role of foreign trade on Turkish Republic of Northern Cyprus’s economic growth based on its national data for the period 1985-2005. They use stochastic time series in their analysis. Trade seems to be very beneficial to the level on national income and highly correlated with GNP growth, suggesting that the volume of trade explains the growth of GNP in Northern Cyprus.
However, in their study, Muhammad S.Anwer and R.K Sampath (1997) test whether there is any evidence for export led economic growth, utilising time series techniques for 96 countries and their results differ. Using data for the year 1960-1992, ADF tests are conducted to check for stationarity of the two variables; GDP and exports. While determining the orders of integration, it was found that GDP and exports are integrated of different orders for 35 countries. Among the other 61 countries, no long run relationship between the two variables was found. 20 countries show causality at least in one direction, of which 12 show unidirectional causality from GDP to exports, from exports to GDP for 6 countries and bidirectional causality for 2 countries. No causality exports and GDP was found for 11 countries. According to the paper, only 9 out of 96 countries show a positive impact of economic growth on exports, meaning that the majority of countries do not show any relation between economic growth and exports.
Econometric tests have been done by Melina Dritsaki, Chaida Dritsaki and Antonius Adamopoulous in 2004, taking FDI as another variable, with the aim to find out the link between Trade, FDI and Economic Growth for Greece. Annual data from year 1969 to 2002 from IMF have been used. They have performed Johansen Co-integration test which shows long run equilibrium relationship and Granger causality test which shows causal relationship among the variables. A unidirectional causal relationship between FDI to GDP and also a unidirectional causal relationship FDI and export with direction from FDI to export has been observed. While on the other hand, we can see a bilateral causal relationship between export and Economic Growth.
Liu Ying and Cui Riming (2008) focus on the same variables as Melina Dritsaki, Chaida Dritsaki and Antonius Adamopoulous in his study in China. Using data for 28 Chinese provinces over the period 1994-2005, the authors introduce an advanced data mining technology, namely the Artificial Neural Networks (ANNs). They approximated a function of foreign trade, FDI and regional GDP in China by an ANN model. It was found that foreign trade and FDI are highly concentrated in a number of provinces. The paper also mentions that foreign trade and FDI contribute positively to economic growth despite the concentration vary in different regions.
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