FAYETTEVILLE, Ark. — Research on the effects of international trade on economic growth has typically relied on measures of trade volume or trade policies. In a new study to be published in the June issue of the Journal of International Trade and Economic Development, University of Arkansas economists show that trade structure — the number of trade partners a country has and the concentration of trade among those partners — affects a country’s economic growth independently of trade volume. The findings indicate that disparities between poor and rich economies may demand different policies regarding trade structure.

Raja Kali

Fabio Méndez

Javier Reyes

“Our study demonstrates that structure matters when considering trade strategy,” said Fabio Méndez, assistant professor of economics in the Sam M. Walton College of Business. “Countries should look beyond the volume-to-gross-domestic-product relationship when making important decisions about trade. The number of trade partners a country has and the concentration of trade among these partners affect economic growth independently from the total amount of trade.”

Méndez, Javier Reyes and Raja Kali, also economics professors in the Walton College, obtained basic trade information — number of partners and concentration or dispersion of trade volume among the partners — for 155 countries between 1980 and 2000. Information on number of partners and concentration was broken down and averaged into four five-year periods.

For rich and poor countries alike, the researchers found a positive connection between the number of trading partners and economic growth. In other words, having many trading partners led to greater economic growth. This was especially true for rich countries. For example, having many trading partners had a greater positive impact for the United States economy than it had for Costa Rica or Kenya.

“While both rich and poor countries seem to benefit from a greater number of trading partners, rich countries benefit more,” Reyes said.

Dispersion — trading a lot with all or most trading partners — had a negative effect on growth for all countries. This effect was more acute for poor countries. In other words, if a small country with an emerging economy traded a great deal with many partners, it likely limited or prevented economic growth.

“Less trade dispersion — more concentration of activity with fewer partners — was beneficial in general,” said Reyes. “This seems especially critical for poor countries. If they are trading a lot with many partners, then they are likely inefficient and perhaps stunting economic growth.”

The researchers used the number of trading partners as variables to measure the exposure of every country to new technologies, new ideas and new managerial processes. They hypothesized that more trading partners would lead to a greater flow of ideas and the possibility of shared technology and other resources, all of which would help facilitate economic growth. They also used the measure of trade concentration to analyze how economies of scale could result from trade concentration for poor countries, but not so for rich countries. Their finding supported the prediction that higher concentration for poorer countries provided economies of scale, which had a positive impact on economic growth.

The researchers’ findings are important as markets continue to open internationally and developed and developing countries alike try to determine the most appropriate trade policy.

“Overall, our research shows that the disparity in existing conditions between poor and rich economies may call for very different policies regarding the structure of trade,” Mendez said.