2002) whereas others find that the effects depend on the measure of trade openness used (Rodriguez and Rodrik 2001). This may, in part, reflect omitted variables. For example, some authors find a large positive impact of trade on growth only when this is accompanied by high levels of education, well-developed financial systems, and institutional reforms (Chang, Kaltani, and Loayza 2009). Likewise, regulatory reforms have been found to enhance the impact of trade on growth (Bolaky and Freund 2004).

Trade and productivity. A number of cross-country and firm-level studies find a positive link between trade and labor or total factor productivity.<sup>3</sup> A cross-country study of 138 countries for 1985 finds that a 1 percentage point increase in trade openness is associated with 1.2 percent higher labor productivity (Alcala and Ciccone 2004). A more recent study of a large number of advanced economies and EMDEs finds that around 15 percent of the increase in total factor productivity growth during 1994-2003 was accounted for by rising trade openness, while for developing countries alone, the proportion was larger, at 32 percent (Broda, Greenfield, and Weinstein 2017). Studies that address firm heterogeneity also point to trade-induced productivity gains. For example, one study finds that firms facing international competition enjoy 3-10 percent higher productivity than those that sell only in domestic markets (Pavcnik 2002). A study for Brazil finds evidence of reductions in inefficiencies in firms that engaged in international trade (Muendler 2004).

Trade and capital accumulation. Several studies find evidence of a positive relationship between trade openness and capital accumulation (Alvarez 2017; Sposi, Yi, and Zhang 2019). A study covering the period 1950-98 indicates that countries that liberalized their trade regimes subsequently experienced 1.5 percentage points higher annual investment growth than before liberalization, on average (Wacziarg and Welch 2008). The literature also points to a close association between trade openness and FDI inflows, which are a source of funding for investment in addition to domestic saving (Shah and Khan 2016; Sharma and Kumar 2015; Stone and Jeon 2000). For example, one study found that among 36 developing economies between 1990 and 2008, trade openness was associated with higher FDI inflows in the long run (Liargovas and Skandalis 2012). Trade policies and the quality of infrastructure have been found to affect the strength of the link between trade and FDI. Thus, a study of Asian countries during 2008-13 found that countries with fewer restrictions on imports and exports had a higher chance of attracting FDI, with a 10 percent reduction in bilateral trade costs being accompanied by an 8 percent increase in FDI inflows (Duval, Saggu, and Utoktham 2015).

Trade and employment. Theoretical models often assume long-run full employment, allowing trade to have only limited, short-term effects on jobs. But a number of empirical studies point to positive effects on employment. For example, a cross-country study of OECD economies over 1983-2003 finds that a 10 percent increase in trade

> 2 See Alesina, Spolaore, and Wacziarg (2000); Dollar and Kray (2004); Frankel and Romer (1999); Noguer and Siscart (2005); and Sachs and Warner (1995).

> 3 See Alcala and Ciccone (2004); Chen, Imbs, and Scott (2009); Edwards (1997); and Frankel and Romer (1999).