International trade as an engine for economic development

The purpose of this investigation is to attempt to determine if international trade is an engine of economic development for less developed countries. The basic proposition is that international trade acts as a mechanical link between more developed countries and less developed countries transmitting the success of the "center" to the "periphery."

Methodology employed is to regress different infrastructure variables on exports to determine if a relationship exists. Time series data is utilized and all figures are transformed into logarithms. Dependent variables selected for the study are: (1) gross domestic product, (2) gross fixed capital formation, (3) energy requirement, (4) energy used in transportation, (5) communication, and (6) education. These proxies were chosen because they more adequately reflect a countries economic development than gross domestic product examined exclusively. Fifteen less developed countries were chosen because of their diversity and data availability.

Results indicate that in some less developed countries international trade may act as an engine of economic growth or development. However, because of lack of a statistically significant relationship in many countries examined, it is highly unlikely that international trade acts as a mechanical link between less and more developed countries. Interestingly, the relationship between gross domestic product or gross fixed capital formation and exports is found to be much stronger than the relationship between the other dependent variables and exports. This implies that international trade may add to the economic growth of a country, while contributing little to economic development. Lower income less developed countries were found to have little relationship between economic growth and exports. Hence, exclusion of these nations from the study would lead to biased results, implying a stronger relationship than actually exists. Also, results indicate that level of economic development (as approximated by gross domestic product growth), is not an important determining factor explaining whether or not international trade aids the development process. In conclusion, the overall finding of the study is that international trade may act as an engine for economic growth in certain circumstances, but there is no solid evidence that trade among countries leads to economic development.