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Abstract
We empirically analyse the role of labour market regulations for the impact of trade on growth. The results indicate that countries with flexible labour markets are more likely to harness the gains from trade. This outcome may help to explain the diverse impact of trade on growth.
Notes
1 See Levine and Renelt (Citation1992) for an overview and a sensitivity analysis of the determinants of economic growth.
2 Data for educational attainment levels is obtained from UNDP (various sources), while all other data has been retrieved from the World Development Indicators (World Bank, Citation2006).
3 The Hausman test result for the extended model, that is, including all control variables, is χ2 = 311.5 (p = 0.000). Hence, the assumption that a model using random effects is preferable is clearly rejected.
4 Due to space constraints, these results are not reported. All results are available on request. Using lagged independent variables in an instrumental variable approach would not work, since information on labour market regulations before 1990 is not available. Otherwise, the panel would shrink to just two periods, which greatly reduces the explanatory power of the results.