Trade openness and sectoral growth in developing countries: some new insights

Abstract

Purpose The trade–growth nexus has been researched during the past few decades. However, the impact of trade openness on different sectors of the economy is not well explored. The purpose of the current study is to focus on developing countries to examine the impact of trade openness on three main sectors: industrial, service and agricultural. Design/methodology/approach The study applied econometric techniques that control unobserved heterogeneity and endogeneity to obtain robust and reliable results. Findings The results revealed that trade openness impacts different sectors differently. Trade openness positively impacts agriculture and industrial sectors, whereas it negatively affects the service sector. A similar trend is observed with regard to employment as it affects service sector negatively and creates a positive impact on other sectors, namely, agriculture and industrial sectors. Furthermore, it was found that human capital has a negative effect on all sectors, whereas financial development has positive effects on service and industrial sectors and negative effect on agriculture sector. The results are robust because of the method of estimation and the addition of some relevant variables. Practical implications The policymakers should focus on trade in agricultural and industrial sectors and should discourage trade in the service sector. Originality/value This study has examined the impact of trade openness on sectoral growth by focusing on the developing world, which is an under-researched area in the literature.