Trade and Growth: Why Asia Grows Faster than Latin America

Feb 2006
This paper deals with a topic that has been amply debated in the development literature: the relationship between trade and growth. The paper's hypothesis is that what matters for growth is not merely openness to trade, or, for that matter, export growth per se. The key feature of countries that have surged ahead in recent decades is that fast export growth has been accompanied by export diversification. The paper tests this hypothesis in the framework of an empirical growth model for the period 1980-2003. It finds considerable support for the hypothesis that diversified export growth is one of the keys to economic growth. The model has strong explanatory power and is able to show why rapidly growing Asian countries have done better than Latin American countries.