The Trade-induced Learning Effect on Growth: Cross-Country Evidence

Abstract

One of the important trade effects on growth is technology diffusion through learning by doing. Chuang [1998] proposed a trade-induced learning theory in which the nature of traded goods\r\nand the trading partners are two key factors determining the effectiveness of the trade-induced learning. The former conveys the characteristics that a country can learn; the latter determines the level of technology from which a country can learn. Using crosscountry data, this article constructs a set of the trade-induced learning variables by taking into account trading partners and the characteristics of the traded goods and further tests the tradeinduced learning hypothesis. The results show that holding other variables constant, trade-induced learning has a positive and significant effect on growth and the estimated effect implies that a one-standard-deviation increase in the trade-induced learning variable is estimated to generate an effect of between 0.4 to 1.0 percentage points on the annual growth rate. A robustness test shows that the trade-induced learning variable passes the extremebound analysis and also outperforms other conventional trade variables advocated in the literature.