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International trade, geographic heterogeneity and interregional inequality

Georg Hirte (), Christian Lessmann and André Seidel

European Economic Review, 2020, vol. 127, issue C

Abstract: We study the effect of international trade on interregional income inequality from 1992 to 2012 in the majority of countries worldwide using satellite night-light-based inequality proxies. For our analysis, we develop novel indicators for within-country heterogeneity in trade costs that are based on exogenous geographical features. In order to deal with potential endogeneity issues, we apply a gravity-style instrument that utilizes the occurrence of large natural disasters striking trade partners, as well as a Bartik-style instrument. In contrast to previous studies, our IV estimates reveal that international trade aggravates economic disparities only in those countries that have a higher within-country heterogeneity in terms of their access to the world market and their within-country trade costs.

Keywords: Interregional inequality; Spatial inequality trade; Trade costs; Heterogeneous geography; Gravity model; Panel data (search for similar items in EconPapers)
JEL-codes: F14 R12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.euroecorev.2020.103427

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