Spatial Analysis of Factors Affecting Economic Growth with Emphasis on Trade

In most previous studies concerning investigation of factors affecting economic growth, spatial dependencies have been ignored which would result in biased and inconsistent estimates. At first, economic growth of a country is influenced by its own geographical, internal conditions and capabilities then affected by the spillover effects of neighboring countries and its trading partners, which these influences by others on growth of a country are called spatial effects and spatial dependencies. Therefore, this study examines the factors affecting economic growth by using the spatial dynamic panel method in both developed countries (members of the Organization for Economic Cooperation and Development) and developing countries (members of the Economic Cooperation Organization) during the 2001-2015 period. The innovation of current research is to use dynamic matrix derived from bilateral trade of countries, which varies over time. By estimating spatial growth model, positive spillover effects from one country to its trading partners have been confirmed in both developed and developing countries. By comparing the results, only the physical capital factor has contributed to improving the growth of developing countries, while in developed countries, in addition to physical capital, two factors including human capital and trade have provided further growth. In order to capture positive effects of trade on advancing economic growth of ECO countries, it has been suggested to consider political and institutional changes in economic development programs.