497
Views
37
CrossRef citations to date
0
Altmetric
Original Articles

The openness–inflation puzzle revisited

&
Pages 465-468 | Published online: 16 Aug 2006
 

Abstract

Dynamic panel estimates show the negative relation between trade openness and inflation found by Romer (Quarterly Journal of Economics, (VIII, 869–903, 1993) but questioned by Terra (Quarterly Journal of Economics, (XIII, 641–48, 1998) became more robust in the 1990s, both among high income OECD and developing countries. Trade openness was also associated with less variable inflation during the 1990s and had a stronger disinflation effect in economies with floating exchange rates.

Notes

1 D. Romer himself is now among the sceptics, see his Advanced Macroeconomics (2000, 2nd edn, p. 492).

2 Lane (Citation1997), however, finds that after controlling for country size, inflation is negatively correlated with openness among OECD countries. Similar results are reported in below.

3 These results are robust to the addition of structural variables such as per capita income, latitude, total PPP GDP (size) and regional dummies see Lane (Citation1997) and Gruben and McLeod (Citation2001). However, many of the variables used in these cross-country regressions are not available in time series or for the 1990s (central bank independence measures for example.)

4 Using the World Bank WDI 2002 imports of goods and services over its PPP GDP estimates yields similar results, but the World Bank WDI only includes PPP GDP estimates from 1975 on, so using the PWT 6.1 openness measures provides a larger sample.

5 Between the late 1980s and the late 1990s, the weighted average import share for the 118 countries in the sample rose from 19% to 24% of GDP while the weighted average inflation rate fell from 70% to 5%.

6 The coefficient of variation is the standard deviation of the log of one plus the inflation rate divided by mean inflation for 1986–1990, 1991–1995 and 1996–2000.

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.