Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa
M. Shahe Emran (),
Harold Coulombe () and
MPRA Paper from University Library of Munich, Germany
In response to rising inequality following decades of trade liberalization, many countries are adopting trade restrictions. Can temporary trade restrictions have long-lasting effects on spatial distribution of employment and resource allocation? To analyze this, we exploit the civil war in Cote d'Ivoire (2002-2007) that disrupted access to world market for two neighboring land-locked countries: Mali and Burkina Faso. The Ivorian war forced rerouting of trade from the Abidjan route to the non-Abidjan routes. We build a general equilibrium model where a subsistence-based autarkic hinterland coexists with an integrated segment, and there are two alternative routes to the international market. A trade shock to one route affects resource allocation in both routes by shifting spatial margins of market integration and sectoral specialization. The effects are heterogeneous depending on the pre-war market access of a location. The empirical analysis takes advantage of panel data and estimates the effects on structural change in employment in non-Abidjan route using a triple difference design with location fixed effect. The areas that remain in autarkic equilibrium both before and after the trade shock provide plausible estimates of the changes arising from long-term factors unrelated to the trade shock. The estimates show that the temporary trade shock created divergence between the Abidjan and non-Abidjan routes with accelerated structural change in favor of manufacturing and services employment in the non-Abidjan route. We find evidence of persistence in the effects through higher sunk investment in built-up density, agglomeration through concentration of skilled labor, and more public investment in complementary inputs such as electricity infrastructure (measured by night-lights density).
Keywords: Temporary Trade Restrictions; Regional Development; Structural Change in Employment; Persistence; Path-Dependence; Built-up Density; Skill Agglomeration; Provision of Electricity; Night-Lights (search for similar items in EconPapers)
JEL-codes: F15 F16 O24 O55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-geo
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Working Paper: Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94598
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