4072 Ann Harrison and Andrés Rodríguez-Clare

Can we use this vast literature to cast light on the IP debate? In defining openness to
trade, we make a distinction between trade volumes, such as exports or imports, and
trade policy, such as tariff reductions or changes in quotas. Most of the studies we
review below find a positive relationship between trade volumes and growth. While
there are far fewer studies that evaluate the linkages between tariffs and growth, they
tend to get insignificant or weak effects. This should not be surprising given the mixed
motives for imposing tariff protection. We hypothesize that these different results imply
that industrial policy is more likely to induce growth if it is “pro-trade.” Yet from a
practical standpoint, it is difficult to envision a successful set of policies that are both
pro-trade and protectionist; at a minimum, this would require policies that fully offset
any antitrade biases. The positive correlation between trade shares and growth is con-
sistent with our hypothesis that IP implemented via export promotion and encourage-
ment of FDI has generally led to higher productivity and growth outcome relative to
IP implemented through protection from trade. Before we turn to the literature on
trade volumes, trade policies, and country outcomes, we begin with some stylized facts.

4.1 Stylized facts on trade policies, 1980–2004

If we use a conventional measure of trade volumes such as export shares in GDP,
developing countries are now more integrated into the world economy than the indus-
trial countries. Figure 2 shows that export shares for developing countries overtook
industrial countries in the early 1990s.
Table 2 shows the evolution of country trade policies over the last 25 years.
Countries are ranked according to the net change in statutory tariff levels between
1985 and 2004. We have included both developing and developed countries to provide
an indication of how protection changes at different stages of development. The first
25.0

Developing countries
22.5

20.0

17.5
-
15.0
High income countries
12.5

10.0
1980 82 84 86 88 1990 92 94 96 98 2000 2
Source: GEP 2003, World Bank data.
Figure 2 Export shares in developing and high-income countries.