Openness of Small Transitional Economies – Revised Analysis after the Global Economic Crisis
Keywords:openness to trade, import, export, economic development, small economies
The in?uence of the economy’s openness on overall economic growth and development is a widely explored topic among economists with still unclear conclusions. They mainly stem from di?erent ways of measuring the degree of openness of countries. In this paper the openness of the economy towards foreign trade is seen as a share of the amount of import and export of goods in the gross domestic product. A particularly interesting issue is the connection between openness and economic development in the case of small open economies, which in principle are “condemned” to greater openness. The subject of this paper is an analysis of the relation between the country’s openness to foreign trade and economic development on a sample of 23 small and transitional economies. The sample examining the relationship between openness and economic development is based on the Transition Report of the European Bank for Reconstruction and Development with the exclusion of some countries that, according to the definition of a small country in this paper, are not considered small countries. A small economy in this paper is defined as a country whose policy on the world market does not a?ect the formation of world prices, i.e. it is a price taker, and this general part of the definition is based on the definition of a small economy that can be found in Deardor? ’s Glossary of the international economics. For a more precise definition of a small economy, we have adopted an additional threshold according to which a small country is considered to be a country whose share in the world exports and imports does not exceed 1%. In this paper, a method of correlation between variables is used to determine the nature of the relationship that exists between openness and economic development of economies. Economic development is measured by gross domestic product per capita measured by purchasing power parity. It was examined what the nature of this relationship is, and whether there is a di?erence between the relationship of exports and economic development and the relationship of imports and economic development. The results of the research suggest that outward orientation has no alternative in the case of small open economies, but for small economies it is extremely important to distinguish foreign trade ?ows from import and export when considering the degree of their openness. This implies that the results of the analysis have shown there is a much stronger positive correlation between openness measured by the share of exports in GDP and economic development than between openness measured by the share of imports in GDP and economic development, although the latter relation is also positive. The results of the analysis point to the conclusion that export performance of small open economies, which they base the growth of the living standard of their population on, is of the highest importance for them.
Anwer, S., & Sampath, R. (1997). Exports and Economic Growth. Presented at Western Agricultural Economics Association 1997 Annual Meeting, July 13-16, 1997, Nevada: Reno/Sparks
Balassa, B. (1985). Exports, policy choices and economic growth in developing countries after the 1973 oil shock. Journal of Development Economics, 18, 23-35.
Baldwin, R. E. (2003). Openness and Growth: What’s the Empirical Relationship?. NBER Working Paper No 9578
Boltho, A. (1996). Was Japanese growth export-led?. Oxford Economic Papers. 48, 415- 32.
Bräutigam, D., & Woolcock, M. (2001). Small States in a Global Economy, The Role of Institutions in Managing Vulnerability and Opportunity in Small Developing Countries. World Institutes for Economics Development Research WIDER Discussion Paper 2001/37.
Daitoh, I., (2008). Environmental Protection and Trade Liberalization in a Small Open Dual Economy. Review of Development Economics, (DOI:10.1111/j.1467- 9361.2008.00455.x) to be completed
Deardorﬀs’ Glossary of International Economics, http://www-personal.umich.edu/~alandear/glossary/s.html
Dollar, D. & Kraay, A. (2001). Trade, Growth, and Poverty. Development Research Group. Washington: The World Bank
Ekanayake, E. (1999). Exports and Economic Growth in Asian Developing Countries: Cointegration and Error-Correction Models. Journal of Economic Development, 24 (2)
Easterly. W., & Kraay, A. (1999). Small States, Small Problems? Income, Growth, and Volatility in Small States. World Bank: http://siteresources.worldbank.org/DEC/Resources/SmallStatesSmallProblems.pdf
Haddad, M. E., Lim, J. J., & Saborowski, C. (2010). Trade Openness Reduces Growth Volatility When Countries are Well Diversified. Policy Research Working Papers 5222 Washington: World Bank
Harrison, A. (1995). Openness and growth: a time series, cross country analysis for developing countries. NBER Working Paper Series No 5221
International Monetary Fund (2012) World Economic Outlook Database. https://www.imf.org/external/pubs/f/weo/2017/02/weodata/index.aspx
Kee, H.L., Nicita, A. & Olarreag, M. (2008). Estimating Trade Restrictiveness Indices. The Economic Journal, 119, 172–199.
Keppel, C., & Worz, J. (2010). Te Impact of the Global Recession in Europe - The Role of International Trade. in Contagion and Spillovers: New Insight from the Crisis, eds. Backé,P. et al, Gnan, E. and Hartmann, P., The European Money and Finance Forum. Vienna: SUERF Study 2010/5
Krueger, O.A. (1998). Why trade liberalization is good for growth. The Economic Journal, 108 (450), 1513-1522.
Krugman, P., & Obstfeld, M. (2009) Međunarodna ekonomija. Beograd: Datastatus
Montalbano, P., Federici, A., Triulzi, U., & Pietrobelli, C. (2005) Trade Openness and Vulnerability in Central and Eastern Europe. Research Paper No. 2005/43, United Nation University – WIDER
Ram, R. (1985). Exports and Economic Growth: Some Additional Evidence. Economic Development and Cultural Change, 33, 415-423.
Rodriguez, F., & Rodrik, D. (2001). Trade policy and economic growth: a skeptic’s guide to the cross-national evidence.
Rodríguez, F. (2006a) Trade and Development. (In Dutt, A. & J. Ros, ed. International Handbook of Development Economics) http://frrodriguez.web.wesleyan.edu/docs/working_papers/Trade_and_Development.pdf
Rodríguez, F. (2006b). Openness and Growth: What Have We Learned? Background note for United Nations’ 2006 World Economic and Social Survey
Rodrik, D., Subramanian, A., & Trebbi, F. (2002). Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development. NBER Working Paper No 9305
Rodrik, D. (2006). Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank’s Economic Gorwth in the 1990s: Learning from a Decade of Reform. Journal of Economic Literature, 44, 973-87.
Sachs, J., & Warner, A. (1995). Economic Reform and the Process of Global Integration. Brooking Papers on Economic Activity, 1,1-118.
Sengupta J. K. (1991). Rapid growth in NICs in Asia: Tests of New Growth Theory for Korea. Kyklos, 44 (4), : 561-79.
Sinha, T., & Sinha, D. (1996). An Empirical Investigation into the Relationship between Openness and Economic Growth: Evidence from Asia. Rivista Internazionale di Scienze Economiche e Commerciali, 43, 359-370.
Streeten, P. (1993). The Special Problems of Small Countries. World Development, 21, 197-202.
Tang, C. F. & Lai, Y. W. (2011). The Stability of Export-led Growth Hypothesis: Evidence from Asia’s Four Little Dragons. Munich Personal RePEc Archive - MPRA Paper No. 27962
Тешић, J. (2013a). Отвореност и конкурентност малих транзиционих привреда. Акта Економика, No 18/XИ, 317-336.
Тешић, J. (2013б). Отвореност малих транзиционих привреда. Економски погледи, No 1 Vol. 15, 1-19.
Tешић, Ј. (2012). Специфичности протекционизма у условима глобалне економске кризе, Зборник радова Економског факултета у Источном Сарајеву. No 6/2012. 77-91.
Van den Berg, H. & Schmidt, J. R. (1994). Foreign trade and economic growth: Time series evidence from Latin America. Journal of International Trade and Economic Development, 3, 121-30.
World Bank (1993) The East Asian Miracle: Economic Growth and Public Policy, Washington: The World Bank
World Trade Organization (2012) Statistics Database: Time Series on International Trade. http://stat.wto.org/StatisticalProgram/WSDBStatProgramHome.aspx?Language=E
Yanikkaya, H. (2003). Trade openness and economic growth: a cross-country empirical investigation. Journal of Development Economics, 72, 57-89.