The theoretical link between trade openness and economic growth has been well documented in the literature (see for example Grossman & Helpman, 1990, 1991; Rivera-Batiz & Romer, 1991; Ben-David & Loewy 2000, 2003; Perera-Tallo, 2003). Generally speaking, the theoretical argument has been that trade liberalization and/or outer-oriented trade strategies, and hence trade openness is good forgrowth (see Krueger, 1998). The rationale behind this is that trade openness promotes growth since it enhances specialization and division of labor in production. This contributes to a more efficient allocation of domestic resources and to improve productivity as much as the trade potential of the economy. Some papers supporting this positive openness-growth nexus are Harrison (1996); Edwards(1998); Greenaway, Morgan, and Wright (2002); Lee, Ricci, and Rigobon (2004); Wacziarg and Welch (2008), Squalli and Wilson (2011); Sakyi, Villaverde, and Maza (2014).
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