Economic openness and income growth : a reassessment of the relationship for developing countries

Abstract

This study analyzes the economic growth differentials among developing countries across Sub-Saharan Africa (SSA), Latin America and the Caribbean (LAC), South and East Asia (SEA) and High Performing Asian Economies (HPAEs), in the context of economic openness. We also investigate economic growth differences between developing countries that opened up their economy early (1960s) and those that opened up later (1980s). The results, using the SYS-GMM estimator show that, economic openness as measured by foreign direct investment positively affects economic growth in SSA and HPAEs. In LAC and SEA, it has no effect on growth. Openness as measured by international trade positively affects growth in SSA and HPAEs. In SEA, the effect is mixed while in LAC, trade has no effect on growth. The HPAEs recorded higher positive trade effect on growth relative to the other countries on account of efficiently managed inflation and well developed human capital.