Panel Paper: From What to Whom? Trade Policy to Accelerate Developing Countries' Economic Growth

Friday, July 20, 2018
Building 3, Room 207 (ITAM)

*Names in bold indicate Presenter

Lisardo Bolaños, Escuela de Gobierno; George Mason University

Recent firm-level studies find manufacturing firms obtaining higher prices by exporting to richer and distant destinations. These results suggest exporting to certain trade partners could impact economic growth at the national level. This paper explores theoretical mechanisms that explain why not all export destinations are the same and then assesses whether to whom developing countries export matters for the medium term growth. I evaluate different strategies to pick trade partners, considering their size, their location, their diversification, and their recent performance. The analysis is conducted using OLS controlling for country fixed-effects. If the ability to imitate the “basket” of trade partners from high-growth countries increases by one standard deviation, the expected annual growth would increase an additional 0.60%. These findings suggest developing nations may benefit from adjusting their trade policies to improve their access in new markets. By doing so, developing nations may deflect protectionist threats growing across developed nations.