کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
5067022 | 1476810 | 2013 | 13 صفحه PDF | دانلود رایگان |
Natural disasters affect bilateral trade. We use this fact to generalize the instrumental variables strategy of Frankel and Romer (1999) to a panel setup. This allows revisiting an old question: Does openness cause per capita GDP? We work with a modified gravity framework in which we interact foreign natural disasters with geography. Predicting the exogenous component of bilateral trade flows and aggregating over trade partners, we obtain a time-varying instrument for multilateral openness of a country. Controlling for constant determinants of income (history, geography) by means of fixed effects, we find a robust positive effect of trade on income. Averaging 0.74, the estimated elasticity is substantially smaller than the one obtained in the cross-section. Poor or non-OECD countries feature a larger elasticity.
⺠Foreign natural disasters interacted by geography predict bilateral trade changes. ⺠Aggregation yields a time-varying exogenous instrument for openness. ⺠The instrument works well in panel regressions explaining countries' income. ⺠Estimated income-elasticities are much smaller than in usual cross-section. ⺠The effect of trade on income is larger in poor or non-OECD countries.
Journal: European Economic Review - Volume 58, February 2013, Pages 18-30