TRADE AND ECONOMIC GROWTH: ECONOMETRIC CROSS-NATIONAL TESTS OF NEOCLASSICAL AND DEPENDENCY THEORY

There are two independently coexisting bodies of econometric cross-national tests of the relationship between international trade and economic growth in the LDCs. The conclusions of the two sets are directly contradictory. This study assesses the discrepancies in the conclusions by analysing the research designs and results, and by conducting new tests (non-parametric and econometric). A simultaneous equations model is tested, utilizing a data set of seventy-eight LDCs over a period of fifteen years (1970-1984). The trade-growth relationships were found to vary widely in groups of LDCs differentiated by the level of development, geographic region, and composition of exports. While a growing export sector was positively associated with economic growth in the full sample of LDCs, this relationship was negative among certain LDC subsamples--in particular, low-income LDCs, Latin American countries, and LDCs with a large percentage of exports in minerals. Furthermore, the results were compatible with the contention that the composition of exports and the concentration of export commodities play a large role, relative to other trade structure characteristics, in influencing economic growth. Greater concentration in the leading export commodities (particularly for those LDCs whose exports are predominantly mineral and/or agricultural goods), and greater reliance on primary exports (excluding oil) were associated with lower economic growth. Although the fundamental conclusions of the neoclassical and dependency tests are directly contradictory, the results are not. To a great extent, this is because the two sets of tests are principally analysing different aspects of the trade-growth relationship. The total sum of results from this study and from the existing trade-growth studies seem to indicate that, while there may be gains to be realized from export-oriented policies for some LDCs, the depiction of trade as an "engine of growth" is largely unfounded. Moreover, these benefits from trade are asymmetrically distributed, favoring the more developed countries.