Trade Openness and Growth: Pursuing Empirical Glasnost

IMF Staff Papers - 56 (2009), 447-475

joint with Andreas Billmeier

Studies of the impact of trade openness on growth are based either on cross-country analysis—which lacks transparency—or case studies—which lack statistical rigor. We apply a transparent econometric method drawn from the treatment evaluation literature (matching estimators) to make the comparison between treated (i.e., open) and control (i.e., closed) countries explicit while remaining within a statistical framework. Matching estimators highlight that common cross-country evidence is based on rather far-fetched country comparisons, which stem from the lack of common support of treated and control countries in the covariate space. We therefore advocate paying more attention to appropriate sample restriction in cross-country macro research.