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Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa

M. Shahe Emran (), Forhad Shilpi, Harold Coulombe () and Brian Blankespoor

MPRA Paper from University Library of Munich, Germany

Abstract: 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)
Date: 2019-06-15
New Economics Papers: this item is included in nep-dev and nep-geo
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