American Economic Review: Vol. 89 No. 3 (June 1999)


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Does Trade Cause Growth?

Article Citation

Frankel, Jeffrey A., and David H. Romer. 1999. "Does Trade Cause Growth?" American Economic Review, 89(3): 379-399.

DOI: 10.1257/aer.89.3.379


Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries' geographic characteristics, however, have important effects on trade and are plausibly uncorrelated with other determinants of income. This paper, therefore, constructs measures of the geographic component of countries' trade and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income.

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Frankel, Jeffrey A. (Harvard U)
Romer, David H. (U CA, Berkeley)

JEL Classifications

F43: Economic Growth of Open Economies
O41: One, Two, and Multisector Growth Models

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