How Much Do Trading Partners Matter for Economic Growth?
IMF Working Papers, February 1, 2004
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Bibliographic details
- Authors: Vivek Arora, Athanasios Vamvakidis
- Published: February 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451844412.001
Overview
- This paper empirically examines the extent to which a country's economic growth is influenced by its trading partner economies.
- Panel estimation results are based on four decades of data for over 100 countries.
- The analysis controls for the influence of common global and regional trends.
Key Findings
- Trading partners' growth and relative income levels have a strong effect on domestic growth.
- The results hold even after controlling for common global and regional trends.
- One interpretation: conditional convergence is stronger, the richer are a country's trading partners.
- A general implication:
- Industrial countries benefit from trading with developing countries, which grow rapidly.
- Developing countries benefit from trading with industrial countries, which have relatively high incomes.
Data, Scope, and Methods
- Empirical approach: panel estimation.
- Time span: four decades.
- Coverage: over 100 countries.
- Controls: common global and regional trends.
Policy-Relevant Implications
- Bilateral trade relationships matter for domestic growth outcomes beyond global and regional cycles.
- Trade policy and integration strategies should consider trading-partner income levels and growth dynamics when assessing potential growth spillovers.
- Diversifying trading partners across different income-level profiles may yield complementary benefits:
- Access to rapidly growing developing-country markets can boost industrial-country growth.
- Access to high-income industrial-country markets can support developing-country income and growth.