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Dedication

To our beloved parentsTanios Shaker Mehanna

Marguerite Zogheib Mehanna

Mohammad Abul KashemMoshammad Rahima Khatoon

To the free spirit and will that have been bestowed upon us.

Foreword

The twenty first century is experiencing a fast pace of global integration ofnational markets even though flow of factors of production, commoditiesservices and intermediates have not been evenly accessed by the countriesthat were told of the even- handed impacts of globalised economic regime.But the reality has been much different from what the proponents haveaggressively put forward in several rounds of negotiations where

developing country perspectives were hardly adequately articulated. Thus itis indeed topical to review the economic literature on trade openness andeconomic growth as market integration takes place. This is the task that Dr.Rock- Antoine Mehanna and Dr. M. Kabir Hassan have undertaken. Theyhave used a framework of analysis now quite common for growth analysis.The advantage of the presentation is a depth of understanding of thewritings on growth in early days of economic treatises when growth theorywas not fashionable but when logical formulation in a given historicalsetting was clear and in that sense was contextual. The generalization thatfollowed made many heroic assumptions for keeping within a framework tounderscore the importance of a policy or a change in policy. Much havebeen done to test such theoretical proposition with formal mathematicalformulation and statistical investigation. The authors have presentedrelevant 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 evidenceremain, despite many recent contribution introducing innovative conceptsand ideas.

The authors have undertaken an empirical study to examine the role of tradeopenness, which causes integration of markets and promotes investment. Inthis context they have also agreed in favour of a defined simpler andpredictable role for the government as a facilitator. The authors have comeout clearly as free market proponents and in their own way answered thequestions that critics of free trade regime in an unequal world with highlydifferentiated negotiation capacity to counter non-tariff barriers indeveloped countries. However, the authors have put their views on the basisof the analytical methodology, which has its advantages and limitations. Allsaid and done I can say without hesitation that it is a readable book, lucidlywritten and bears the mark of hard labour and clear thinking. For students ofgrowth and trade liberalisation this would be a good introduction to the vastliterature that exists in the area. This is a work well done.

Muzaffer AhmadProfessor, Institute of Business Administration

Dhaka University

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Publishers note

By the time the world is moving fast to reach the goal of globalization. Thepeople at different corners of the globe are reacting differently. While it was

hoped that globalization would bring about progress and prosperity to evenout the differences among the nations at different pace of development, butthe 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 bedirected to cool down this complicated issue, which has been dealt with in

this book in its diverse aspects. The authors have examined the syndromeempirically 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 thisbook.

May Allah accept this effort in the way of emancipation of the human spiritand sustainable growth and development.

Dhaka, 2003 M. Zohurul Islam, FCA

Secretary General, BIIT

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 ...................................................................... 15Summary................................................................................... 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