Openness, Specialization and Growth

This paper explores the link between trade and growth showing how the relationship between openness and per capita income is contingent to the size and the level of export specialization of countries. Measuring openness both in terms of trade volumes and trade policies, and specialization as a index of the position of the distribution of sectoral revealed comparative advantages, the paper - using parametric and semiparametric panel data analysis - offers a precise taxonomy of the effects of openness on growth according to the size and the specialization of countries. The effect of openness on growth is enhanced by the diversification of sectoral exports characterized by comparative advantages, and is reduced by the physical or economic dimension of the country considered. The effect is however nonmonotonic: an increase in openness is relevant for growth at low levels of openness, specialization is effective only at early stages of development, while is differentiation that enhances growth at higher levels of per capita income.