Discussion Paper No. 125 of 2011 on Liberalization and Economic Growth: The Role of Regulatory Policies

Abstract

This study investigates the relationship between international trade liberalization and economic growth, with a focus on the role of regulatory policies in selected 16 sub-Saharan Africa (SSA) countries. It seeks to examine the role of regulatory policies on economic growth directly, and whether they affect international trade liberalization contribution to economic growth. While international trade liberalization refers to the removal of barriers to international trade, regulatory policies improvement is the reduction of regulations in credit, labour and product markets that exist within a country to create efficient and less regulated economy. Human development and physical capital accumulation are the other determinants of economic growth examined in this study. Using panel data, the study utilizes the instrumental variables (IV) methodology to deal with the problem of endogeneity. The results show that international trade liberalization, accumulation of physical capital and efficient regulatory policies contribute to economic growth. International trade liberalization and efficient regulatory policies compliment each other, and their concurrent implementation increases the rate at which the economy grows. The study shows that less regulated countries benefit more from international trade liberalization than highly regulated countries.