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Trade Costs and Economic Development

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  • Michele Fratianni
  • Francesco Marchionne

Abstract

We test the hypothesis of the circular causality between trade costs and degree of economic development using data on Italian provinces. Using different methods to control for multilateral resistance, we apply a gravity equation to estimate sectoral exports to 188 countries over the period 1995-2004. Provincial trade costs are constructed as the sum of five province-specific elasticities, including distance, adjacency, and common money. We find that Italian provinces are heterogeneous with respect to trade costs. These costs are influenced by lagged provincial per capita income and industrial structure. In turn, trade costs influence future provincial per capita income. This two-way relationship between trade costs and income is broadly consistent with the cumulative causation process emphasized by the New Economic Geography.

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Bibliographic Info

Article provided by Clark University in its journal Economic Geography.

Volume (Year): 88 (2012)
Issue (Month): 2 (04)
Pages: 137-163

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Handle: RePEc:bla:ecgeog:v:88:y:2012:i:2:p:137-163

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Citations

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Cited by:
  1. Fratianni Michele, 2012. "150 years of Italian political unity and economic dualism: An Introduction," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 335-346.
  2. Fulvio Castellacci, 2014. "Service Firms Heterogeneity, International Collaborations and Export Participation," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 259-285, June.
  3. Florian Mölders & Ulrich Volz, 2011. "Trade creation and the status of FTAs: empirical evidence from East Asia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(3), pages 429-456, September.
  4. Michele Fratianni, 2011. "Riflessioni sulla politica economica italiana in occasione del 150esimo anniversario dell'Unita'," Mo.Fi.R. Working Papers 53, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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