Does Trade Raise Income? Evidence from the Twentieth Century / Douglas A. Irwin, Marko Tervio.

Format:

Book

Author/Creator:

Irwin, Douglas A.

Contributor:

National Bureau of Economic Research.

Tervio, Marko.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7745.

NBER working paper series no. w7745

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

Efforts to estimate the effects of international trade on a country's real income have been hampered by the failure to account for the endogeneity of trade. Frankel and Romer recently use a country's geographic attributes - notably its distance from potential trading partners - as an instrument to identify the effects of trade on income in 1985. Using data from the pre- World War I, the interwar, and the post-war periods, this paper finds that the Frankel-Romer result is robust to different time periods, i.e., that instrumenting for trade with geographic characteristics raises the estimated positive effect of trade on income by a substantial margin and, in most of our cases, the precision of those estimates. These results suggest that the downward bias of OLS estimates is systematic and may be due to measurement error, a potential source of which is that trade is an imperfect proxy for a host of economically beneficial interactions between countries. However, the results are not robust to the inclusion of another geographic variable, latitude (distance from the equator).

Notes:

Print version record

June 2000.