Description:
This paper examines the effects of trade
on growth among Central America-Dominican Republic Free
Trade Agreement countries. To accomplish this task, the
authors collected a panel data set of 136 countries over
1960-2010, and estimated cross-country growth regressions
using an econometric methodology that accounts for
unobserved effects and the likely endogeneity of the growth
determinants. Following recent empirical efforts, they
tested whether the impact of trade openness on growth may be
more effective after surpassing a "minimum
threshold" in specific areas closely related to
economic development. The analysis finds not only that there
is a robust causal link from trade to growth, but also that
the growth benefits from trade are larger in countries with
higher levels of education and innovation, deeper financial
markets, a stronger institutional framework, more developed
infrastructure networks, a high level of integration with
world capital markets, and less stringent economic
regulations. On average, rising trade has benefited growth
in Central America-Dominican Republic Free Trade Agreement
countries. However, the lack of progress in structural
reforms has not allowed these countries to maximize the
potential benefits from trade.