Sebastian Edwards

Bio: Sebastian Edwards is an academic researcher from University of California, Los Angeles. The author has contributed to research in topics: Exchange rate & Current account. The author has an hindex of 87, co-authored 493 publications receiving 31856 citations. Previous affiliations of Sebastian Edwards include National Bureau of Economic Research & NHS Tayside.

Openness, Productivity and Growth: What Do We Really Know?

Abstract: For over a century social analysts have debated the connection between trade policy and economic performance. This controversy continues today, even as the world is experiencing an unprecedented period of trade liberalization, and in spite of numerous empirical studies that claim to have found a positive effect of openness on growth. Two issues have been at the core of these controversies: first, until recently theoretical models had been unable to link trade policy to faster equilibrium growth. And second, the empirical literature on the subject has been affected by serious data problems. In this paper I use a new comparative data set for 93 countries to analyze the robustness of the relationship between openness and TFP growth. I use nine alternative indexes of trade policy to investigate whether the evidence supports the view that, with other things given, TFP growth is faster in more open economies. The regressions reported here are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries have indeed experienced faster productivity growth. Although the use of instrumental variables goes a long way towards dealing with endogeneity, issues related to causality are still somewhat open, and will require time series analyses to be adequately addressed.

Openness, productivity and growth: what do we really know?*

Abstract: Comparative data for 93 countries are used to analyse the robustness of the relationship between openness and total factor productivity growth. Nine indexes of trade policy are used to investigate whether the evidence supports the view that total factor productivity growth is faster in more open economies. The results are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries experienced faster productivity growth. Although the use of instrumental variables help dealing with endogeneity, issues related to causality remain somewhat open, and require time series analyses to be adequately addressed. Old controversies die slowly. For over a century social analysts have debated the connection between trade policy and economic performance. While according to liberal economists freer trade results in faster growth, some analysts have argued that protectionism may help economic performance. This controversy continues today, even as the world is experiencing an unprecedented period of trade liberalisation, and in spite of numerous empirical studies that claim to have found a positive effect of openness on growth. The most prominent trade liberalisation sceptics include Krugman (1994) and Rodrik (1995), who have argued that the effect of openness on growth is, at best, very tenuous, and at worst, doubtful. Two issues have been at the core of these controversies: first, until recently theoretical models had been unable to link trade policy to faster equilibrium growth. And second, the empirical literature on the subject has been affected by serious data problems.1 During the last decade, however, the 'new' theories of growth pioneered by Romer (1986) and Lucas (1988) have provided persuasive intellectual support for the proposition that openness affects growth positively. Romer (1992), Grossman and Helpman (1991) and Barro and Sala-i-Martin (1995), among others, have argued that countries that are more open to the rest of the world have a greater ability to absorb technological advances generated in leading nations. Barro and Sala-i-Martin (1995, Ch. 8), for example, consider a twocountries world (one advanced and one developing), differentiated inputs, and no capital mobility. Innovation takes place in the advanced (or leading) nation, while the poorer (or follower) country confines itself to imitating the new techniques. The equilibrium rate of growth in the poorer country depends on the cost of imitation, and on its initial stock of knowledge. If the costs of imitation are lower than the cost of innovation, the poorer country will

Openness, Trade Liberalization and Growth In Developing Countries

Abstract: I am indebted to three referees for extremely helpful comments This paper was revised during my stay at the Kiel Institute for the World Economy, in March 1992 I thank colleagues and the library staff at Kiel for support I am grateful to the participants of a seminar at USAID for stimulating discussions I especially thank Jim Fox for his comments Roberto Schatan, Fernando Losada, and Abraham Vela, provided able assistance I am particularly indebted to Miguel Savastano for extensive assistance and comments on earlier versions of this paper Financial support from the Institute for Policy reform, the University of California Pacific Rim Program, and the National Science Foundation is gratefully acknowledged

Real Exchange Rates, Devaluation, and Adjustment: Exchange Rate Policy in Developing Countries

Abstract: "Real Exchange Rates, Devaluation, and Adjustment "provides a unified theoretical and empirical investigation of exchange rate policy and performance in scores of developing countries. It develops a theory of equilibrium and disequilibrium real exchange rates, takes up the question of why devaluations are the most controversial policy measures in poorer nations, and discusses what determines their success or failure.In a lucid fashion, Edwards organizes vast amounts of data on exchange rates - both real and nominal - and discusses their effect on net trade balances, net asset positions, output growth, real wages, and rates of price inflation, analyzed both in time series and through cross country comparisons. Edwards's investigation singles out 39 major devaluation episodes for before and after comparative analyses while simultaneously isolating the separate effects of other important explanatory variables, such as bank credit expansion and changes in the terms of trade.The first part of the book focuses on theoretical models of devaluation and real exchange rate behavior in less developed countries. Special attention is paid to intertemporal channels in the transmission of disturbances. The second part uses a large cross country data set to analyze the way the real exchange rate has behaved in these nations. The data are also used to test the implications of several theories of real exchange rate determination. The third part analyzes actual devaluation experiences between 1962 and 1982. These chapters examine the events leading to a balance of payments crisis and to a devaluation, exploring the relation between macroeconomic disequilibrium, and the imposition of trade and exchange controls. They also investigate the effect of nominal devaluation on key variables such as the balance of payments, the current account, the real exchange rate, real output real wages, and income distribution.Sebastian Edwards is Professor of Economics at the University of California at Los Angeles and Research Associate at the National Bureau of Economic Research.

A sensitivity analysis of cross-country growth regressions

Abstract: A vast amount of literature uses cross-country regressions to find empirical links between policy indicators and long-run average growth rates. The authors study whether the conclusions from existing studies are robust or fragile when small changes in the list of independent variables occur. They find that although"policy"appears to be importantly related to growth, there is no strong independent relationship between growth and almost every existing policy indicator. They also find that very few macroeconomic variables are robustly correlated with cross-country growth rates. They clarify the conditions under which one finds convergence of per capita output levels and confirm the positive correlation between the share of investment in GDP and long-run growth. They conclude that all findings using the share of exports in GDP could be obtained almost identically using the total trade or import share and also that few commonly used fiscal indicators are robustly correlated with growth. Finally, the authors highlight the importance of considering alternative specifications in cross-country growth regressions.

Does Trade Cause Growth

Abstract: Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries’ geographic characteristics, however, have important effects on trade, and are plausibly uncorrelated with other determinants of income. This paper therefore constructs measures of the geographic component of countries’ trade, and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income. (JEL F43, 040)

A sensitivity analysis of cross-country growth regressions

Abstract: A vast literature uses cross-country regressions to search for empirical linkages between long-run growth rates and a variety of economic policy, political, and institutional indicators. This paper examines whether the conclusions from existing studies are robust or fragile to small changes in the conditioning information set. The authors find that almost all results are fragile. They do, however, identify a positive, robust correlation between growth and the share of investment in GDP and between the investment share and the ratio of international trade to GDP. The authors clarify the conditions under which there is evidence of per capita output convergence.

Economic Reform and the Process of Global Integration

Abstract: WHEN T H E BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the