Does Openness Always Guarantee Growth? Endogenous Relationship between Trade Openness and Economic/Industrial Growth

Abstract

By applying endogenous growth theory, this study examines the relationship between trade openness and economic growth among OECD/non-OECD (low and middle income) nations using World Bank and OECD data. Additionally, this study investigated the relationship between trade openness and industry growth among 10 major industries and new growth engine industries of Korea by using industrial statistics from the Korea Institute for Industrial Economics and Trade. As a result of the first study, the OECD group exhibits an endogenous relationship between trade openness and economic growth where trade leads to economic growth, and economic growth in turn leads to trade enlargement. However, in the non-OECD group, only trade openness has a positive effect on economic growth. This is because industry competitiveness and resource outflow/inflow are different in the OECD and non-OECD groups. According to our second study, Korea’s 10 major industries possess endogeneity with trade and economic growth having bidirectional effects. On the other hand, a negative relationship is seen for Korea’s new growth-engine industries, where there exist more negatives as external trade openness grows. The explanations and policy implications for the difference in OECD and non-OECD countries and Korea’s major industries/new growth engine industries are discussed.