Non-linear Effects of Trade Openness on Economic Growth

Abstract

This paper analyzes the effects of trade openness on economic growth in a panel of thirty developed and developing countries. The fixed effects model was estimated using the PSTR technique on data covering the period 1980-2019. The results show that the relationship between trade openness and economic growth is non-linear, and that the effects of external openness on growth depend on the thresholds of national income per capita. Below the estimated national income threshold of 35 118 USD per capita, trade openness has no significant effect on economic growth. Above this threshold, trade openness contributes positively to economic growth. It is suggested that the political authorities implement policies that contribute to increasing national income and improving purchasing power