A new GLO Discussion Paper examines the hypothesis that trade can be an engine of growth using data for the Southern African Development Community (SADC) countries. It finds that export expansion stimulated growth, more openness to trade reduced it, and that the formation of SADC had not yet brought any effects on growth.
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GLO Discussion Paper No. 657, 2020
Trade and Economic Growth: Theories and Evidence from the Southern African Development Community – Download PDF
by Farahane, Matias Jaime & Heshmati, Almas
GLO Fellow Almas Heshmati
Author Abstract: This paper empirically tests the hypothesis that trade can act as an engine of growth using panel data for the Southern African Development Community (SADC), a regional integration agreement (RIA) organization, the central objective of whose formation was the need to accelerate, foster, and encourage the region’s growth. Our results indicate that during the period covered by this study (2005-2017), export expansion stimulated growth, more openness to trade reduced it, and that the formation of SADC had not yet brought about any effects on growth perhaps because of lack of full establishment of the primary instruments for achieving its central objective. These results lead to three conclusions. Firstly, trade through export expansion seems to be a better solution for SADC for achieving the central objective of its formation. Secondly, more openness to trade seems to jeopardize growth. Finally, the formation of SADC has not yet brought about the expected gains from a RIA. In this context, we recommend that policymakers should consider adopting measures aimed at supporting increased trade through promoting export expansion, achieving strong absorption of negative chocks that usually result from trade, and exploring the possibility of establishing all the planned primary instruments for achieving SADC’s central objective.
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