Productivity, Trade & Institutional Quality

29 Pages Posted: 24 Aug 2007

See all articles by Inmaculada Martínez-Zarzoso

Inmaculada Martínez-Zarzoso

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences; Jaume I University - Department of Economics

Eleanor Doyle

Department of Economics

Date Written: 2007

Abstract

We estimate the relationship between productivity and trade for a panel of countries over the period 1980 to 2000 using instrumental-variables estimation of a productivity equation. We note that some estimates of productivity gains attributed to trade capture instead the roles of institutions and geography. The endogeneity of trade and institutional quality is accounted for by using instruments. We extend the Frankel and Romer (1999) specification, using real openness to measure trade (following Alcala and Ciccone, 2004), which allows for identification of channels through which trade and production scale affect productivity. The trade instrument is based on a "theoretically motivated' gravity equation. The instruments for institutional quality come from Gwartney, Holcombe and Lawson (2004). Contrary to Alcala and Ciccone, our results suggest no robust relationship between real openness and labour productivity in the 1980s. Conversely, the relationship between productivity and real openness appears to be robust from 1990 onwards and similarly in the case of institutional quality. We also find evidence implying that countries with low-quality institutions are also able to benefit from openness to trade.

Keywords: Productivity, trade, institutional quality, real openness, nominal openness, instrumental variables estimation

JEL Classification: F14, F43, O40

Suggested Citation

Martínez-Zarzoso, Inmaculada and Doyle, Eleanor, Productivity, Trade & Institutional Quality (2007). Available at SSRN: https://ssrn.com/abstract=1009131 or http://dx.doi.org/10.2139/ssrn.1009131

Inmaculada Martínez-Zarzoso (Contact Author)

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences ( email )

Germany

Jaume I University - Department of Economics ( email )

Campus del Riu Sec.
E-12071 Castellon
Spain

Eleanor Doyle

Department of Economics ( email )

University College Cork
College Road
Cork, none none
Ireland

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