IMF Staff Papers, Volume 56, No. 3

IMF Staff Papers, July 31, 2009

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IMF Staff Papers, Volume 56, No. 3

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Bibliographic details

• Published: July 31, 2009
• Series: IMF Staff Papers
• Volume: 56
• DOI: https://doi.org/10.5089/9781589068209.024

Overview and Research Question

• Studies of the impact of trade openness on growth are typically based either on crosscountry analysis—which lacks transparency—or on case studies—which lack statistical rigor.
• This paper applies a transparent econometric method drawn from the treatment evaluation literature (matching estimators) to make the comparison between treated (that is, open) and control (that is, closed) countries explicit while remaining within a statistical framework.

Methodology

• Econometric approach: matching estimators from the treatment evaluation literature.
• Purpose: make explicit the comparison between treated (open) and control (closed) countries within a statistical framework.
• Key methodological insight: matching estimators reveal lack of common support in the covariate space between treated and control countries.

Main Findings

• Common cross-country evidence on the impact of trade openness on growth is often based on rather far-fetched country comparisons.
• These problematic comparisons stem from the lack of common support of treated and control countries in the covariate space.
• The evidence suggests that improper matches between treated and control observations can distort cross-country inference on openness and growth.

Policy and Research Recommendations

• Pay more attention to appropriate sample restriction in crosscountry macro research.
• Use transparent matching-based evaluation methods to improve the credibility and interpretability of cross-country comparisons.

Subjects and Keywords

• Subject: Balance of payments, Capital flows, Consumption, Current account, Current account deficits, Emerging and frontier financial markets, Financial markets, National accounts
• Keywords: Africa, Asia and Pacific, asset-price shock, Capital flows, Caribbean, Consumption, consumption growth, Current account, Current account deficits, current account position, current account sustainability, Emerging and frontier financial markets, Global, Middle East, net capital flow, SP

International Monetary Fund. IMF Staff Papers, Volume 56, No. 3 (July 31, 2009).