The relationship between trade openness and economic growth is ambiguous from both theoretical and empirical point of view. The theoretical propositions reveal that while trade openness leads to a greater economic efficiency, market imperfections, differences in technology and endowments may lead to adverse effect of trade liberalisation on individual countries. In this chapter, we re-examine the empirical evidence pointing to the benefits of trade liberalisation and bring theoretical issues on possible adverse effect of openness to the fore. It has been argued that ‘passive’ trade liberalisation may not necessarily lead to positive economic outcomes, particularly in less advanced transition economies. Considering the empirical work on the matter, a lot of controversies are related to measurement issues. We find that openness measured by trade intensity indicators may lead to misleading conclusions about the trade growth nexus. Hence, the discussion of policy implications regarding the positive influence of trade barriers on economic growth goes well beyond the context of transition.
Part of the book: Trade and Global Market
The aim of this research is to analyse the importance of cultural and institutional determinants in attracting FDI to transition countries. We rely on gravity econometric framework and examine the impact of cultural and institutional factors on FDI using bilateral FDI flows between home (i.e. major trading partners) and eight transition economies in the period 2000–2018. We study this relationship in an integrated framework considering principal gravity forces, traditional FDI determinants, policy and institutional factors. We provide strong and robust evidence that cultural factors, depicted in Hofmann cultural indices, influence MNCs’ locational decisions. Other things held constant, specific cultural features seem more important than formal institutions, which seems at odds with standard neoclassical propositions, and shed some new light on the way we understand international business transactions.
Part of the book: Emerging Markets