International Trade And Economic Growth

The relationship between international trade and economic growth hasbeen a core subject of many researchers for centuries. Most leading scholars havebeen exploring this issue for years, leaving many convincing theories and manycontroversial issues as well.This paper tries to explore the impacts of international trade on economic growthin both Sichuan Province and Guangdong Province of China. After clarified theresearch background and scope, this paper reviews the literatures reported by theprevious researchers based on the following two main clues: the first one focuses ontheoretical research, including balance of trade theory developed in the times of AdamSmith, comparative advantage theory, factor endowments theory, as well as the recentwork made by Paul Krugman who applies increasing returns to scale to explain tradeissues. The second one focuses on the empirical study, the literatures are reviewedfrom three aspects: national level, different regions in China, Sichuan Province andGuangdong Province. Next, the literatures on the mechanism through whichinternational trade affects economic growth are reviewed. These are what the secondchapter of this paper included.The third chapter of this paper briefly introduces the development ofinternational trade, including the scale, increasing rate and benefit of internationaltrade, in both Sichuan Province and Guangdong Province since China’s Reform andOpening-up. It is found that Sichuan’s international trade scale adjusted for inflationis quite smaller than that of Guangdong, the scale of the former is less than10%ofthat of the latter. The increasing rates of international trade in both provinces aresimilar, the average annual rate of increase remains at approximate15%in general,Sichuan’s increasing rate is2.42%more than that of Guangdong on average in each year，slightly higher than Guangdong’s. As for the benefit of international trade,Sichuan’s international trade promote economic growth is much smaller than that ofGuangdong, however, the former is more stable than the latter.The fourth chapter analyses the relationship between international trade andeconomic growth based on co-integration theory and the Error Correction Model. Thefifth chapter explores the mechanisms through which international trade promoteseconomic growth in Sichuan Province and Guangdong Province respectively. Theconclusions of this paper are as follows: first, in the long run, international trade canpromote economic growth in both Sichuan and Guangdong according to theco-integration analysis, specifically, the elasticity of international trade with respect toeconomic growth in Sichuan and Guangdong are0.0124and0.1538, respectively.Second, in the short run, international trade plays a positive role on economic growthin Guangdong, whereas, the effects of trade on economic growth in Sichuan areinsignificant according to the Error Correction Model. Third, the studies on themechanisms through which international trade promotes economic growth in bothprovinces indicate that the main channel in Sichuan is the accumulation of physicalcapital, and human capital accumulation is the main channel in Guangdong. However,international trade affects economic growth through the contribution of productivity isquite limited. Finally, some suggestions are given accordingly.