Trade in capital goods, trade policy and economic development

This paper critically reviews the existing studies on the relation between capital good imports by developing countries and economic growth. After having pointed out that the existing evidence is not strong enough to confirm the causal link running from the trade policies to the economic growth, this paper shows that the existence of a well-developed local capital good sector explains better the capital good imports by developing countries than the trade policies do. Finally, the paper discusses the implication of this finding on the Northeast economic development and cooperation.