Effect of trade openness on regional economic growth in China: revisiting the discussion

ABSTRACT

Increasing openness contributes to economic growth in developing countries, but the endogeneity problem impedes drawing this conclusion. This paper uses the constructed trade share to circumvent the effects of endogeneity according to a method proposed by Frankel and Romer. The results demonstrate that increasing openness has a positive impact on provinces’ GDP and GDP per capita. In addition, an increase in lagged openness is beneficial for present economic growth, and even openness gained many years ago, which is measured by the number of treaty ports, makes a difference in present economic growth.

KEYWORDS:

• Economic growth
• endogeneity problem
• gravity equation
• trade openness

JEL CLASSIFICATION:

• F14
• F43
• O18
• R11

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The calculation of the distance between two trading partners is based on the Great Circle Formula. Data on longitudes and latitudes for the calculations were sourced from the CEPII database (http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id=6) and (http://www.geonames.org).

² We select a period (2002–2008) with surging exports and imports for the following reasons. First, before China’s accession of WTO (December 2001), growth rate of trade is not as salient as that in the period 2002–2008. Moreover, our data source (Development Research Centre in the State Council of PRC) only provides comprehensive trade data across provinces starting in 2002, thus we choose 2002 as our starting sample year. Second, China’s trade plunge due to the influence of financial crisis in 2009 and trade openness never come back to the level before the financial crisis. So we choose 2008 as the ending year.

³ https://en.wikipedia.org/wiki/Treaty_ports

Additional information

Funding

Yi Che gratefully acknowledges support from the Young Scientists Fund of the National Natural Science Foundation of China (NSFC, Grant No. 71703099 and 71703085) and Shanghai International Institute of Finance and Economics. Deming Luo gratefully acknowledges support from the National Natural Science Foundation of China and the Economic and Social Research Coucil of UK Joint Research Project (NSFC-ESRC, Grant No. 71661137002), the Ministry of Education Project of Key Research Institute of Humanities and Social Sciences at Universities (Grant No. 16JJD790052), and the Fundamental Research Funds for the Central Universities (Grant No. 201853-9).