“Openness and growth in alternative trading regimes. Evidence from EEC and CMEA’s customs unions"

While common sense would indicate that trade and growth are positively correlated, it is not clear from a theoretical and empirical perspective whether or not trade is a proximate determinant of growth. The voluminous empirical efforts in this area show mixed findings. Trying to elucidate the ambiguities in the literature we study the nexus between trade flows and growth in three groups of countries: historical EEC, the extreme case of CMEA customs union and a group of transitional economies (TEs), most of which just recently added to the EU member states. The comparator group of former communist countries, in which trade-openness is not spurred by market incentives, should be very informative in explaining the impact of trade on growth. Our main finding, by applying different econometric methodologies, is that either for the EEC or CMEA the coefficient of real openness is negative for the former two samples and positive for the third. For the EEC the indicator of openness shows a positive sign solely when the rate of growth of trade share is considered. The findings prove to be robust to variations in the controlling set, to different econometric techniques, and for the last group of countries to changing in the empirical indicator of openness (inter and intra-industry trade indicators).