The relationship between trade openness and industrialisation: an empirical analysis of a sample of 97 countries

Abstract

The objective of this paper is to investigate the nature (causality and form) of the relationship between international trade and industrialisation. To do so, we used the PVAR model of Love and Zucchino (2006) and the dynamic panel threshold regression model of Seo and Shin (2016) on a sample of 97 countries in the world for the period 1996-2019. These economies are subdivided into groups according to their level of income and industrialisation: High-Income Industrial Economies (HIIE), Middle-Income Industrial Economies (MIIE), Middle-Income Industrialising Economies (MIIE) and Low-Income Economies (LIE). Our results show that the causal relationship between international trade and industrialisation is bidirectional for the 97 countries taken together, whereas it is unidirectional for the individual groups. While for the EIRMs, EVIRMs and ERFs industrialisation causes trade openness, trade openness causes industrialisation for the EIRE. The results also show that the level of development conditions the relationship between industrialisation and trade openness for the 97 countries together and for each group of countries. West African countries present specificities in terms of causality.