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Economies in Transition: How Important Is Trade Openness for Growth?


  • The authors would like to thank Guido Tabellini for sharing his data, as well as Klaus Enders, Christian Keller, Luca Ricci, Thanasis Vamvakidis, two anonymous referees, Jon Temple (the associate editor of this journal), and seminar participants at the IMF and ASSET 2007 for very helpful comments and suggestions. All errors are ours. The views expressed herein are those of the authors and should not be reported as representing those of Ziff Brothers Investments, L.L.C.


We investigate the effect of trade openness on economic growth in transition countries using a transparent statistical methodology that leads to data-driven case studies. In particular, we employ synthetic control methods in a panel of transition economies and compare GDP growth in treated (that is, open) countries with growth in a convex combination of similar but untreated (that is, closed) countries. We find that trade liberalization tends to have a positive effect on the pattern of real GDP per capita. One of our most robust results shows that making the transition without opening up to trade considerably hampers growth.