 Trade and income in the long run: Are there really gains, and are they widely shared?Diego A. Cerdeiro and András Komáromi Review of International Economics, 2021, vol. 29, issue 4, 703-731 Abstract: In the cross‐section of countries, there is a strong positive correlation between trade and income, and a negative relationship between trade and inequality. Does this reflect a causal relationship? We revisit the Frankel and Romer (1999) identification strategy, and exploit countries’ exogenous geographic characteristics to estimate the causal effect of trade on income and inequality. Our cross‐country estimates for trade’s impact on real income are consistently positive and significant over time. In addition, we do not find any statistical evidence that more trade increases aggregate measures of income inequality in the long run. A decile‐level decomposition reveals that the positive effect of trade on income decreases monotonically along the income distribution, suggesting that trade integration should be an integral part of long‐run development agendas under any reasonable social welfare function. Addressing previous concerns in the literature, we carefully analyze the validity of our geography‐based instrument, and confirm that the IV estimates for the impact of trade are not driven by other direct or indirect effects of geography through non‐trade channels. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:29:y:2021:i:4:p:703-731 Ordering information: This journal article can be ordered from Access Statistics for this article Review of International Economics is currently edited by E. Kwan Choi More articles in Review of International Economics from Wiley Blackwell |
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