How much do trading partners matter for economic growth

This paper empirically examines the extent to which a country’s economic growth is influenced by the economies of its trading partners. Panel estimation results based on four decades of data for more than 100 countries show that trading part-ners ’ growth has a strong effect on domestic growth, even after controlling for the influence of common global and regional trends. The results are robust to instru-mental variable estimation and other robustness tests. Trading partners ’ relative income levels are also positively correlated with growth, suggesting that the richer a country’s trading partners, the stronger is conditional convergence. A general implication of the results is that countries benefit from trading with fast-growing and relatively more developed countries. [JEL F43, F15] How much does a country’s long-term economic growth depend on economicconditions in the rest of the world? The view is commonly held that with growing economic integration across countries, economic developments in a coun-try are significantly influenced by developments abroad.1 In addition, barring some notable objections, the general conclusion in the literature is that trade openness has a positive impact on growth.2 However, the quantification of the relationship *Vivek Arora is the IMF resident representative in South Africa and Lesotho; Athanasios Vamvakidis is the IMF resident representative in Croatia. The authors are grateful to Tamim Bayoumi, Michae