Modelling Trade Liberalisation and Economic Growth using Smooth Transitions Analysis: Some New Evidence for Turkey

Abstract

This chapter is concerned with the effects of trade liberalisation upon economic growth. There already exists a large and growing body of literature on the nature of trade liberalisation and its effects, stimulated by extensive programmes of trade reforms promoted in developing countries over the last two decades or so. Trade liberalisation was promoted in upwards of 80 developing countries in the 1980s and 1990s. While some of these liberalisations were unilateral, the overwhelming majority were policy conditioned under the aegis of World Bank Structural Adjustment Loans (SALs).¹ A common feature of these liberalisations is that they were all undertaken on the assumption that trade liberalisation would ultimately improve both exports and growth. However, the empirical evidence on the effects of liberalisation upon growth performance is at best mixed. On the one hand there is the exhaustive study undertaken for the World Bank by Papageorgiou et al. (1991), who claim to have revealed a close positive relationship in a sample of 19 countries, including Turkey. On the other hand, Greenaway and Sapsford (1994a, 1994b) find evidence of only a limited role for liberalisation, while a number of studies of the SALs (for example Harrigan and Mosley, 1991; World Bank, 1990) associate adjustment with a deterioration in growth performance.