Do Natural Barriers Affect the Relationship Between Trade Openness and Growth?

Authors


  • The authors are grateful for helpful comments on earlier drafts of the article of an anonymous referee and from participants of the International Economics Study Group Annual Conference (University of Bath), GEP Workshop (University of Nottingham), University of the West Indies Seminar Series and Spring Meeting of Young Economists and from an anonymous referee of this journal. They also gratefully acknowledge financial support from the Leverhulme Trust under Programme Grant F/00 114/AM.

Abstract

This article investigates whether there are threshold effects in the relationship between openness and productivity growth that are fashioned by a country's natural barriers, using a cross-country growth model. Alternative methods of modelling thresholds are explored. An endogenous threshold model is shown to be preferable to the use of interaction effects. The results identify critical levels of natural barriers which affect how greater openness or liberalization impacts on productivity growth. We find that only countries with higher natural barriers receive growth benefits from trade liberalization.

Ancillary