| The objective of this paper is to study and test the hypothesis that the composition of trade is important to a country's growth. This hypothesis has been introduced by Mazumdar (1996) who suggested that the composition of trade influences medium-run transitory growth. He explained that developing countries being capital goods importers and consumption goods exporters, gain more from trade openness than developed countries. Due to international trade, the relative prices of imported capital goods declined, leading to a decrease in the cost of new capital for developing countries. Using trade (import and export) data from the SITC (Standard International Trade Classification) review 4 from the United Nations COMTRADE, a trade composition variable (COMPO) was created using both capital and consumption goods. After empirical testing of fourteen developing and developed (Argentina, Brazil, Canada, Egypt, France, Germany, India, Indonesia, Italy, Japan, Mexico, Thailand, United Kingdom, and the United States) countries bilaterally from 1975 to 2005, the results support the hypothesis, and indicate that countries that import capital goods and export consumption goods experience faster economic growth than countries that export capital goods and import consumption goods. Hence, the composition of trade is highlighted as a valuable determinant of economic growth.;Keywords: Composition of trade, economic growth, international trade, trade and growth. |
