GEP Research Paper 08/14
Trade Liberalisation, Economic Crises and Growth
Rod Falvey, Neil Foster and David Greenaway
Summary
We employ threshold regression techniques on five crisis indicators to identify "crisis values" and to investigate whether an economic crisis at the time of trade liberalisation affects subsequent growth performance.
Abstract
Many economic reforms are undertaken at a time of economic crisis. But is this a good time to undertake trade reform? In this paper we investigate whether an economic crisis at the time of trade liberalisation affects a country’s subsequent growth performance. We employ threshold regression techniques on five crisis indicators commonly used in the literature, to identify the relevant “crisis values” and to estimate the differential post-liberalisation growth effects in the crisis and non-crisis regimes. We find that the post-liberalisation growth depends on the characteristics of the crisis. Broadly speaking, an internal crisis implies lower growth and an external crisis higher growth relative to the non-crisis regime. These effects appear to be present in both the short and longer runs.
Issued in April 2008
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