4090 Ann Harrison and Andrés Rodríguez-Clare

negatively if tariffs are on capital goods or intermediates, which is consistent with

Levine and Renelt’s 1992 hypothesis that openness matters because it affects resource
accumulation.
A second promising area of research is related to an emerging consensus on the
need for openness to trade to be accompanied by key complementary policies. Recent
research emphasizing the importance of complementarities between trade and other
policies includes Chang, Kaltani, and Loayza (2005), Bolaky and Freund (2004), and
DeJong and Ripoll (2006). One reason why the relationship in Eq. (1) may be fragile
could be because openness to trade is most successful if implemented in conjunction
with other policies which make it possible for firms to effectively compete on world
markets. If such a policy can be characterized as X (there could be overlap between
X and Z ), then it would lead to a slightly different specification:

Y it ¼ Constant þ bOPENNESSit þ fZ it þ dX it
þ lðOPENNESS $ XÞit þ ai þ tt þ eit

Figure 4, taken from Bolaky and Freund (2004), makes this point graphically. Bolaky
and Freund use three different measures of openness, including real and nominal trade

Low Barriers to Entry High Barriers to Entry

11 11

USA NOR IRL

GHE NLD BEL
AU GRRNORSWE HK JPN
TTA
PRI SGP
10 NZL
ISR 10 ESP
SVN GRC BRT
CZE KOR

OMN HUN
SVK
POL APG
LTU HRV
ZAF
CHL LVA
MEX MYS RI
9 9 BRA
URY RUS BWA
ROUNAWTHA TUR DOM BGR
IRN PAN COL
KAZ VEN DZA BIN MKD
BLR
PER LBN UKR
CHN GRW
LAMIAM GTM ALBMAR P LOR
EGY FOL
NIC GYR
DN AZE
8 ARM 8
IND HND
RNG BOL
ZWE GEO USO VNM
PAK GDA
SMR GHA KHM
AGO
LADKGZ MNG HTI MRT
BGD UZB GIV
SEN TSO MDA
NPL UGA
7 RWA
BEN
7 BFA KEN
TCD
MOZ
NGA ERI
MLI
ZMB MOGEM
NER
ETH COD
MWI TZA
SLE
6 6
−1.5 −1 −5 0 5 1 −1.5 −1 −5 0 5
Ln(Trade/GDP) Ln(Trade/GDP)
Ln(GDP per capita) Fitted values Ln(GDP per capita) Fitted values

Figure 4 Trade, growth, and regulation of entry.