Trade openness, income, and role of institutions: A revisit using heterogeneous panel data models

Figures & data

Table 1. Summary statistics of the key variables

Variable	Number of observations	Mean	SD
ln Real GDP per capita	3122	8.188081	1.640744
Trade Openness	2978	.4811129	.471347
Law and Order	2762	3.783646	1.499376
Polity2	3013	3.55692	6.759173

Table 2. Estimation results for homogenous panel model

Dependent variable: ln (GDP per capita)
	FE	2FE	FE	2FE
	(1)	(2)	(3)	(4)
Trade Openness	.6429937***	.2296661***	.6332904***	.2088776***
	(.12081)	(.0739366)	(.1127267)	(.0718565)
Law and Order			.0461112***	.039467***
			(.0149796)	(.0130473)
Time FE	No	Yes	No	Yes
Country FE	Yes	Yes	Yes	Yes
Number of observations	2976	2976	2624	2624
Number of groups	97	97	97	97

Note: The method of estimation is least squares. FE: fixed effects, 2FE: fixed effects with time effects. Robust standard errors are given in the parenthesis.

^*** Significantly different from zero at 1%.

Table 3. Estimation results for heterogeneous panel model

Dependent variable: ln (GDP per capita)
	MG	MG	MG	MG
	(1)	(2)	(3)	(4)
Trade Openness	1.376913***	.7444219***	1.55909***	.478983***
	(.227698)	(.1320468)	(.2019188)	(.1371125)
Law and Order			.0032991	−.0014522
			(.010376)	(.0070101)
Trend	No	Yes	No	Yes
Number of observations	2976	2976	2624	2624
Number of groups	97	97	97	97

Note: MG: Mean group estimator. Standard errors are given in the parenthesis.

^*** Significantly different from zero at 1%.

Table 4. Cross-section dependence of the main variables

Variable	CD-test value	Test-p value
ln Real GDP per capita	192.72	.000
Trade Openness	144.44	.000

Note: The test is done under the null hypothesis of cross-section independence.

Table 5. Pesaran’s CADF test for panel unit root tests

	Number of lags
	0	1	2	3
With an intercept only
ln Real GDP per capita	.825	−1.203	−.545	−.730
Trade Openness	2.407	2.790	5.320	1.891
Law and Order	1.265	.353	2.422	3.217
With an intercept and trend
ln Real GDP per capita	1.676	−1.282	1.410	.970
Trade Openness	3.077	3.083	5.639	3.201
Law and Order	−.576	−1.127	3.359	4.593

Note: Table presents the z-values with the null hypothesis assuming that all series are non-stationary.

Table 6. Estimation results for heterogeneous factor model

Dependent variable: ln (GDP per capita)
	MGCCE	MGCCE	MGCCE	MGCCE
	(1)	(2)	(3)	(4)
Trade Openness	.7537701***	.524323***	.5491221***	.421144***
	(.181189)	(.0997246)	(.1162439)	(.112554)
Law and Order			.020579***	.0154229**
			(.0059936)	(.0063543)
Trend	No	Yes	No	Yes
Number of observations	2976	2976	2624	2624
Number of groups	97	97	97	97

Note: MGCCE: Common correlated effects mean group estimator. Standard errors are given in the parenthesis.

^*** Significantly different from zero at 1%.

^** Significant at 5% level.

Table 7. Estimation results for heterogeneous factor model with an interaction term of institutions

	MGCCE	MGCCE
	(1)	(2)
Trade Openness × Law and Order	.1073716	.3803887**
	(.1919723)	(.1693357)
Trade Openness	.0304397	−1.201091*
	(.7514781)	(.6670121)
Law and Order	−.0455744	−.0804804*
	(.0499352)	(.0423719)
Trend	No	Yes
Number of observations	2624	2624
Number of groups	97	97

Note: MGCCE: Common correlated effects mean group estimator. Standard errors are given in the parenthesis.

^** Significant at 5% level.

^* Significant at 10% level.

Table 8. Estimation results for heterogeneous factor model with Polity2 as an alternative variable for institutions

Dependent variable: ln (GDP per capita)
	MGCCE	MGCCE
	(1)	(2)
Trade Openness	.7122959***	.5140405***
	(.1106792)	(.1029652)
Polity2	−.0014757	−.0047219*
	(.0022875)	(.0026391)
Trend	No	Yes
Number of observations	2828	2828
Number of groups	92	92

Note: MGCCE: Common correlated effects mean group estimator. Standard errors are given in the parenthesis.

^*** Significantly different from zero at 1%.

^* Significant at 10% level.