Trade openness and sectoral growth in developing countries: some new insights

Date03 June 2019
Publication Date03 June 2019
AuthorMuhammad Tahir,Tooba Mazhar,Muhammad Asim Afridi
SubjectEconomics,International economics
Trade openness and sectoral
growth in developing countries:
some new insights
Muhammad Tahir,Tooba Mazhar and Muhammad Asim Afridi
Department of Management Sciences, COMSATS University Islamabad,
Abbottabad Campus, Abbottabad, Pakistan
Purpose The tradegrowth nexushas been researched during the past few decades. However, the impact
of trade openness on differentsectors of the economy is not well explored. The purpose of the current study is
to focus on developing countries to examine theimpact of trade openness on three main sectors: industrial,
serviceand agricultural.
Design/methodology/approach The study applied econometric techniques that control unobserved
heterogeneityand endogeneity to obtain robust and reliable results.
Findings The results revealed that tradeopenness impacts different sectors differently. Tradeopenness
positively impacts agriculture and industrial sectors, whereas it negatively affects the service sector. A
similar trend is observed with regard to employment as it affects service sector negatively and creates a
positive impact on other sectors, namely, agriculture and industrial sectors. Furthermore, it was found that
human capital has a negative effect on all sectors, whereas nancial development has positive effects on
service and industrialsectors and negative effect on agriculture sector.The results are robust because of the
method of estimationand the addition of some relevant variables.
Practical implications The policymakers should focus on trade in agriculturaland industrial sectors
and shoulddiscourage trade in the service sector.
Originality/value This study has examinedthe impact of trade openness on sectoral growth by focusing
on the developingworld, which is an under-researched area in the literature.
Keywords Developing countries, Panel data, Trade openness, Sectoral growth
Paper type Research paper
1. Introduction
Trade openness and its impact on economic growth is debated and researched in the
literature extensively during the past few decades (Tahirand Azid, 2015). It is evident from
the available literaturethat trade openness, most of the times positively inuences economic
growth and contributes to economic growth in various ways such as through diffusion of
knowledge and technologies, capital accumulation, economies of scale, and productivity
growth (Andersen and Babula, 2009). Researchers have provided sound support for the
hypothesis that believes on the positive tradegrowth nexuses. However, some other
researchers heldthe opposite view and believe that trade rather harmseconomic growth.
For example, Rodriguez and Rodrik (2001) criticized the positive tradegrowth nexuses
on measurement and methodological weakness. Frankel and Romer (1999) pointed out that
those countries which have higher opportunities to trade have higher incomes. Tradehelps
in poverty reduction in poor economies by increasing real income of the population as
documented by Dollar and Kraay (2001). Furthermore, Hallak and Levinsohn (2004) made
clear that the researchers and policymakers should focus more on the mechanisms of trade
rather than the outcome, which affects the trade. Tahir and Khan (2014), presented their
Journalof Chinese Economic and
ForeignTrade Studies
Vol.12 No. 2, 2019
pp. 90-103
© Emerald Publishing Limited
DOI 10.1108/JCEFTS-01-2019-0001
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