4092 Ann Harrison and Andrés Rodríguez-Clare

additional controls to include in cross-country estimation are ongoing concerns.

Nevertheless, our review of the studies in Appendix Table 1 suggests that in the
post-World War II period, tariffs on average have not been successful in generating
higher growth. We confirm these general conclusions using a panel dataset on non-
OECD countries, for the 1960-2000 period. In particular, we contrast the results using
trade shares (X þ M/GDP) as our openness measure relative to using the World Bank’s
revenue tariffs (tariff revenue divided by imports). The dependent variable is log
income per capita. The use of a panel of annual observations allows us to control for
country-specific fixed effects and also for time effects. Country fixed effects are one
approach to controlling for country characteristics that vary across countries (such as
institutions) that are not perfectly measured and do not vary systematically from one
year to the next. Time effects allow us to control for worldwide shocks, such as an
oil price shock or a worldwide currency crisis.
The top two rows in Table 5 show that openness measured using trade shares is
positively and significantly associated with growth. These results are consistent with
the majority of the studies listed in Appendix Table 1 that use trade shares as a measure
of openness and generally find that changes in trade shares are associated with higher
growth. However, the bottom two rows show that revenue tariffs are not significantly
associated with growth. Even skeptics, such as Rodriguez (2007), generally conclude
that there is a strong correlation between trade volumes and growth, while the asso-
ciation between trade policy—as measured by the World Bank’s revenue tariff
measure—and growth is weak.
The positive correlation between trade shares and growth is very strong and
remains after we add other controls. The negative correlation between tariffs and
growth is significant in some specifications but is not a robust finding. What should
we make of this? As we discussed in Section 3, tariffs are imposed for many reasons.
Foremost among these reasons are the need to raise revenue, political economy consid-
erations, and infant-industry concerns. Either IP via protection has not increased
growth, or protection on average has been imposed for other reasons, leading to no
net gains in output.
A promising area for new research is to move beyond reduced form evidence on
the linkages between openness and growth so that we can identify how openness to
trade affects growth. This is particularly important from a policy perspective. If open-
ness yields benefits because it allows firms to import new technology embodied in cap-
ital goods, the policy implications are quite different than if openness is beneficial
because it forces firms to compete internationally or leads to market share reallocation
toward more efficient firms. Identifying the mechanisms leading from openness to
growth is precisely the focus of new micro-based studies of firms (see, e.g., Acemoglu,
Antras, & Helpman, 2007 or Melitz, 2003). These theoretical advances have been
accompanied by a growing empirical literature, to which we now turn.