Trade Liberalization, Structural Change, and Economic Growth

Trade and the integration of countries into the global economy is one of the main forces shaping the structural composition of economies, an effect which in turn is expected to impact upon productivity and growth. Structural change can be restrained or reinforced by international trade. This chapter reviews the theory on the relationship between trade and trade liberalization and both structural change and growth, from the contributions of Adam Smith to the more recent new new trade theory beginning with the work of Melitz. The chapter further discusses the existing empirical evidence on the relationship between trade and structural change, before concluding by presenting evidence on the impact of trade liberalization on productivity growth for a broad sample of countries, further decomposing the effect into an effect due to structural change and an effect due to within sector productivity developments.