Trade and Income in Asia: Panel Data Evidence from Instrumental Variable Regression

Benno Ferrarini
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Benno Ferrarini: Asian Development Bank

No 234, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper derives a Frankel-Romer instrument from a global trade matrix of 157 countries over the period 1990–2007, and deploys it to assess the relationship between international trade, domestic market potential, and income for the case of developing Asia, compared to the world average. The findings from panel instrumental variable regression confirm international trade to have caused income to rise on average across the world’s trading nations, but particularly so for countries of developing Asia, where this effect appears to be strongest. By contrast, domestic trade potential represented by country size is found to be less relevant a factor in explaining the rise in income of developing Asia. In light of a likely softening of external demand for Asian exports as global rebalancing takes hold, Asia’s underexploited domestic market potential represents considerable scope for the region to step up its efforts to gradually reinforce the domestic and regional dimensions as an additional engine of growth.

Keywords: Trade and Growth; Gravity Model; Frankel-Romer Instrument; Developing Asia (search for similar items in EconPapers)
JEL-codes: F10 F43 O40 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-11
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0234

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