Trade Liberalisation and Economic Growth In Developing Countries: Does Stage of Development Matter?

Abstract

This paper surveys the available literature on liberalisation and growth, updates the widely used Sachs and Warner (1995) index of trade liberalisation for 193 countries up to 2010, and then investigates the impacts of trade liberalisation in economic growth using a dynamic growth model for a large set of panel data covering the period of 1985-2010. The results show that the impact of trade liberalisation on economic growth differs across countries depending on the stage of economic development. Lower-middle income countries, on average, benefit at least 3% more compared to other developing countries from the trade liberalisation. This finding makes a strong case for taking into account the stage of economic development in making policy recommendations for trade policy reforms, departing from the standard "?Washington Consensus"? approach.