ON OPENNESS, INTEGRATION AND ECONOMIC GROWTH

ON OPENNESS, INTEGRATION AND ECONOMIC GROWTH

Rock-Antoine Mehanna, Ph.D M. Kabir Hassan, Ph.D*

Publisher: Bangladesh Institute of Islamic Thought (BIIT) 145, Green Road, Dhaka 1205, Bangladesh Phone: 9138367, 9114716, Fax: 880-2-9114716 E-mail: biit89_info@yahoo.com, biit_org@yahoo.com biit@citechco.net First Published in May 2003

Rock-Antoine Mehanna, Ph.D M. Kabir Hassan, Ph.D*

ISBN - 984-8203-32-6

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Bangladesh Institute of Islamic Thought (BIIT)

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Foreword
The twenty first century is experiencing a fast pace of global integration of national markets even though flow of factors of production, commodities services and intermediates have not been evenly accessed by the countries that were told of the even- handed impacts of globalised economic regime. But the reality has been much different from what the proponents have aggressively put forward in several rounds of negotiations where developing country perspectives were hardly adequately articulated. Thus it is indeed topical to review the economic literature on trade openness and economic growth as market integration takes place. This is the task that Dr. Rock- Antoine Mehanna and Dr. M. Kabir Hassan have undertaken. They have used a framework of analysis now quite common for growth analysis. The advantage of the presentation is a depth of understanding of the writings on growth in early days of economic treatises when growth theory was not fashionable but when logical formulation in a given historical setting was clear and in that sense was contextual. The generalization that followed made many heroic assumptions for keeping within a framework to underscore the importance of a policy or a change in policy. Much have been done to test such theoretical proposition with formal mathematical formulation and statistical investigation. The authors have presented relevant ideas in a simple formulation that would attract serious students of growth and trade relations. For them the book can indeed become a primer. As stated by the authors the gap between theory and empirical evidence remain, despite many recent contribution introducing innovative concepts and ideas. The authors have undertaken an empirical study to examine the role of trade openness, which causes integration of markets and promotes investment. In this context they have also agreed in favour of a defined simpler and predictable role for the government as a facilitator. The authors have come out clearly as free market proponents and in their own way answered the questions that critics of free trade regime in an unequal world with highly differentiated negotiation capacity to counter non-tariff barriers in developed countries. However, the authors have put their views on the basis of the analytical methodology, which has its advantages and limitations. All said and done I can say without hesitation that it is a readable book, lucidly written and bears the mark of hard labour and clear thinking. For students of growth and trade liberalisation this would be a good introduction to the vast literature that exists in the area. This is a work well done. Muzaffer Ahmad Professor, Institute of Business Administration Dhaka University

Dedication
To our beloved parents Tanios Shaker Mehanna Marguerite Zogheib Mehanna Mohammad Abul Kashem Moshammad Rahima Khatoon To the free spirit and will that have been bestowed upon us.

Contents
I. Introduction .............................................................................. 9 The Problems and its setting....................................................... 9 Purpose of the Study................................................................. 12 Significance and Contribution .................................................. 12 Definition of Terms .................................................................. 14 Plan of the Study ...................................................................... 15 Summary................................................................................... 15 II. Literature Review ................................................................... 17 Neoclassical Models ................................................................. 17 Endogenous Models ................................................................. 18 New Growth Models ................................................................ 19 Source of Growth ..................................................................... 20 Physical Capital ........................................................................ 20 Human Capital .......................................................................... 23 Education .................................................................................. 23 III. Methodology............................................................................ 61 IV. Empirical Analysis.................................................................. 86 V. Summary, Conclusions and Policy Implications................ 101 Bibliography ................................................................................ 112 List of Acronyms ......................................................................... 129 About the Authors....................................................................... 131 BIIT Publications ........................................................................ 135 List of Tables 1. Degrees of RTAs and Dates of Memberships ................... 79 2. Growth Descriptive Statistics............................................. 87 3. Growth Regression Results for Models 6, 3, 2, and 1 ....... 89 4. Investment Regression Results ........................................ 92 5. Growth Regression Results for Models 6, 5, and 4............ 94 6. Stability Regression Results............................................... 98 List of Figures 1. Integration and Sovereignty .............................................. 77 2. The Significant Link between Openness and Growth ....... 95

Publishers note
By the time the world is moving fast to reach the goal of globalization. The people at different corners of the globe are reacting differently. While it was hoped that globalization would bring about progress and prosperity to even out the differences among the nations at different pace of development, but the symptoms seem to be otherwise frustrating the expectation and it is now almost set to fail to narrow the gap between income and social inequalities among different nations. The reactions of the demonstrators in Italy and Seattle expose the gloomy future of the globalisation. No effort seems to be directed to cool down this complicated issue, which has been dealt with in this book in its diverse aspects. The authors have examined the syndrome empirically to demonstrate the role of trade openness in the integration of markets World over to promote investment on a global scale. We are happy to able to publish this book from BIIT. It is expected that the economists, businessmen and industrialists will find worth reading this book. May Allah accept this effort in the way of emancipation of the human spirit and sustainable growth and development.

Dhaka, 2003

M. Zohurul Islam, FCA Secretary General, BIIT