By Terry Roe, Agapi Somwaru, and Xinshen Diao

Geography, international trade and institutions are often cited as reasons for the disparity in income among nations. This paper reviews these arguments and focuses on the interdependence between institutional reform and foreign trade. Countries must export to import, and integrating an economy into world markets induces institutional change, which facilitates increased rates of economic growth.

It is shown that agricultural policies in advanced countries are a barrier to agricultural exports from developing countries. If these barriers, as the literature suggests, are also barriers to institutional reform in poor countries, then the typically measured gains in trade reform by advanced countries are greatly underestimated, i.e., one (size) does not fit all. An analysis of growth in factor productivity linked to institutional reform in sub-Saharan Africa is show to increase transition and long-run growth substantially.

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