that Rodriguez and Rodrik (2000) base their claims on empirical specifications with low
statistical power for testing the impact of trade restrictions on growth and development.
Warner also presented additional tests of the growth-openness relation based on
specifications similar to Sachs and Warner (1995). The weight of the evidence argues that
protection is harmful to growth. At the same time, Vamvakidis (2002) and Clemens and
Williamson (2004) examine longer-period historical data. They found that the existing
correlation between openness and growth becomes significant only in recent decades.
Rodrik (2007) argued that trade and financial openness by themselves are implausible to
lead to economic growth, and may occasionally even backfire, in the absence of a wider
range of complementary institutional and governance reforms. Here, it is worth noting that
even such outstanding defenders of globalization like Blinder (2006), Summers (2006) or
Krugman (2007) have acknowledged that globalization has also some adverse effects and
increases inequality and insecurity.
3. Model Specification
Unlike in the previous studies on globalization, our main objective is to test the long run and
permanent growth effects of globalization through their effects on the total factor
productivity (TFP). One confusion in the previous studies is that there is no clear distinction
between the transitory growth effects of globalization and their permanent growth effects
because in many specifications the actual rate of growth out put is regressed on some
measure of globalization and a few control variables. It is also not clear what are the
theoretical growth models from which the specifications have been derived. In this paper we
shall use an extended form of the Solow (1956) growth model. Although TFP in the Solow
model is exogenous, we modify the production function to capture the growth effects of
globalization through its effects on TFP. This is consistent with the suggestions of Edwards
(1998) and Dollar and Kraay (2004) to use a similar procedure. The Solow (1956)
exogenous growth model is relatively easier to extend and estimate compared to other
endogenous growth models which are more complicated if properly specified and estimated;