Paper #765

Title:

Trade, extent of the market and economic growth 1960-1996

Authors:

Francisco Alcalá and Antonio Ciccone

Date:

February 2003 (Revised: December 2003)

Abstract:

We find that trade and domestic market size are robust determinants of economic growth over the 1960-1996 period when trade openness is measured as the US dollar value of imports and exports relative to GDP in PPP US$ ('real openness'). When trade openness is measured as the US dollar value of imports and exports relative to GDP in exchange rate US$ ('nominal openness') however, trade and the size of domestic markets are often non-robust determinants of growth. We argue that real openness is the more appropriate measure of trade and that our empirical results should be seen as evidence in favor of the extent-of-the-market hypothesis.

Keywords:

Extent of the market, institutions, growth

JEL codes:

F43, O40

Area of Research:

Macroeconomics and International Economics

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