Abstract:
According to traditional trade theories, foreign trade affects economic growth via several channels such as knowledge and technology spillover, improvement of resources allocation, increasing productivity and competitiveness. Within the framework of new trade theories, the effect of foreign trade on economic growth is ambiguous, and this effect depends on the combination of the different effects specially the market structure. Regarding to the theoretical ambiguity and lack of the empirical studies on the topic, the present paper investigates the relationship between intra-industry trade and economic growth by using the Panel Vector Autoregressive (PVAR) method for selected developed and developing countries4 during 2001-2014. The results of the model estimation showed that this relationship is positive for the developed countries, while interestingly we found the negative relationship for the developing countries. Despite the latter result, there are still high potentials for the developing countries to exploit their capability in the new trade to promote their economic growth if the new trade determinants will be considered in their policy making.
Machine summary:
"The Nexus between Economic Growth and Intra-Industry Trade1 Saeed Rasekhi2 Masoumeh Ramezani3 Abstract According to traditional trade theories, foreign trade affects economicgrowth via several channels such as knowledge and technology spillover, improvement of resources allocation, increasing productivity and competitiveness.
Regarding to the theoretical ambiguity and lack of the empirical studies on the topic, the present paper investigates the relationship between intra-industry trade and economic growth by using the Panel Vector Autoregressive (PVAR) method for selected developed and developing countries4 during 2001-2014.
In this framework, the international trade affects on economic growth through the market structure (Hall, 1988; Smulders and Klundert, 2004; Gali, 1994; Melitz, 2000), product differentiation (Romer, 1990; Segerstrom, 1998; Bajona et al.
Although there is a direct relationship between the scale economies and the total factor productivity (Graham, 2001; Nemoto and Asia, 2002), and the increase in the output of firms leads to increased economic growth, there are two different views in the framework of the new trade theories.
Table 7 :Variance decomposition analysis for the selected models Variance decomposition of IIT, Impulse: (View the image of this page) 4) Conclusions The purpose of this paper is to investigate the relationship between intra- industry trade and economic growth in two different classes of developing and developed countries during the period of 2001-2014 using the Panel Vector Autoregressive method.
As a matter of fact, in the short run, the comparative advantage based trade will be a motor of economic growth for developing countries, but passing time, they should exploit their home market and move toward an optimum combination of scale intensive and differentiated products."
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