The Effects of Labor Markets and Trade Openness on Economic Growth: A Panel Data Analysis for G-20 C

Introduction

One of the important economic developments that shaped the macroeconomic history of the 20th century was the spread of economic growth to the global market (Snowdon and Vane, 2017: 524). It has been observed that constantly changing and developing globalization, international integration and technological innovations have obvious effects on economic growth. Globalization and the developments in information and communication technologies that accelerate the process have brought countries closer together and led to increased cooperation between countries. The development and transformation of the global market, where new technologies develop in short intervals, the proliferation of rival industries, and businesses operating in a global competitive environment have constantly turned to newly transformed information and technologies. It can be said that the main factor determining this competitive power is based on R&D and innovation. Technological innovations can cause changes in markets, as well as changes in the competitive structure, products and processes. Achieving competitive power; It requires having a global competitive strategy, investing in a qualified workforce, continuing innovation activities, and launching products that meet customers’ demands and needs faster than competitors. In time Transforming the inventions obtained as a result of intensive R&D into technology and presenting them to the service of societies has become the most important goal. Due to the increase in competition and rapid changes in customer demands, businesses have become more sensitive to technological changes and the importance of research and development (Forward and Horasan, 2010).

The liberalization of international trade, together with large-scale cross-border financial mobility, constituted the first step in the resumption of trade in industrialized countries under the General Agreement on Tariffs and Trade (GATT) in the 1970s. In the early 1980s, the scope of liberalization in foreign trade was expanded by including developing countries in the GATT agreement (ILO, 2004). The increasing interest in trade liberalization has greatly changed the course of the world economy. Most countries have adjusted their laws towards trade liberalization and resorted to policy changes (Christiansen, Schindler and Tressel, 2009). Although the concept of trade openness is closely related to the liberalization of trade between countries, it also means the liberalization of the country’s foreign trade in the world market.

While liberalization of trade in the global market includes policies aimed at increasing trade, trade openness is considered as a phenomenon mostly associated with the country’s production. In this respect, trade openness is associated with the total production of countries and has an increasing effect on the trade volume. (Alam and Sumon, 2020: 123). When evaluated on a country basis, it is seen that countries with increased trade openness have achieved faster growth figures, joined the world economy with the increase in globalization and abandoned trade restrictive practices. At the same time, rapidly developing technology developments since the 2000s have increased productivity in businesses and contributed to the development of labor markets. With these developments, trade openness has positively affected the development of countries and increased their welfare (Çoban, 2019: 156). At the same time, when evaluated with Ricardo’s theory of comparative advantage, it is known that trade openness also contributes to economic growth. Specialization in the economy, division of labor and equal distribution of resources, which are the criteria of the theory of comparative advantage, increase the level of income (Manole and Spatareanu, 2010: 1).