AN ANALYTICAL EVALUATION OF THE IMPACT OF OPENNESS ON ECONOMIC PERFORMANCE: A THREE-SECTOR GENERAL EQUILIBRIUM OPEN ECONOMY MODEL

The theoretical linkages between openness and long-run economic growth are established with the development of new growth theories. In this literature, it has been shown that openness affects economic growth through a number of channels and the direction of this effect is closely related to the complex interactions exist among sectors of the economy. The theoretical models on the subject are very sophisticated and provide useful insights into the linkages between openness and growth but the complexity of these models makes it difficult to identify the contribution of a particular link to economic performance. To make it easier to understand the interactions among sectors of the economy, and to provide consistency with the conventional sectoral classification employed in economics, in this article, we provide an illustrative three-sector open-economy general-equilibrium model. Using this model, we will show analytically the impact of openness on sectors of the economic and identify the channels and magnitude of this effect. We will also support our analytical findings by providing the results obtained from simple simulation exercises