Does Trade Openness contribute to driving Financing Flows for Development?

This paper questions whether trade openness could be an important driver of financing for development flows, notably development aid (ODA), Foreign Direct Investment (FDI) inflows, and government public revenue, the latter being the ultimate financing source for development for any country. The paper also takes advantage of the framework of analysis to investigate the interplay between these three types of financial flows. Relying on an unbalanced panel dataset comprising 125 countries, of which 37 are Least Developed Countries (LDCs), the empirical analysis uses the three stage least squares econometric approach and provides two important pieces of evidence: first, international trade openness is an important tool for driving financial flows for development, including government public revenue, development aid and FDI. As a result, it could contribute to mobilizing the substantial financial resources needed for development, including for the implementation of the SDGs. Second, there are strong interactions (complementarity and substitutability) between these three types of financing for development flows.

No: ERSD-2017-06

Authors: Jean-François BRUN (UCA, CNRS, CERDI) and Sèna Kimm GNANGNON (WTO)

Manuscript date: March 2017

Key Words:

Trade Openness, Government public revenue, ODA inflows, FDI Inflows

JEL classification numbers:

F13, F30, P33, O11

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Disclaimer 

This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its author. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the author.

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