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Does Trade Cause Capital to Flow? Evidence from Historical Rainfalls

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  • Kalemli-Ozcan, Sebnem
  • Nikolsko-Rzhevskyy, Alex

Abstract

Estimating the effect of trade on capital flows is difficult given the inherent identification problem. We use fluctuations in rainfall to capture the exogenous variation in trade between Germany, France, the U.K., and the Ottoman Empire during 1859-1913. The provisionistic policy of the Ottoman Empire--only surplus production was exported--constitutes the basis of our identification strategy. We find that one standard deviation in rainfalls from the mean leads to a 3.5 percent increase in Ottoman exports, which in turn causes a 10 percent increase in capital inflows from the three source countries. Our findings support trade theories predicting complementarity between trade and capital flows.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8550.

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Date of creation: Aug 2011
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Handle: RePEc:cpr:ceprdp:8550

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Keywords: capital flows; default; empire; exports; FDI; rainfalls;

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  1. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
  2. Alan M. Taylor & Janine L. F. Wilson, 2006. "International Trade and Finance under the Two Hegemons: Complementaries in the United Kingdom 1870-1913 and the United States 1920-30," NBER Working Papers 12543, National Bureau of Economic Research, Inc.
  3. Altug, Sumru & Filiztekin, Alpay & Pamuk, Şevket, 2008. "Sources of long-term economic growth for Turkey, 1880–2005," European Review of Economic History, Cambridge University Press, vol. 12(03), pages 393-430, December.
  4. Christopher M. Meissner & Alan M. Taylor, 2006. "Losing our Marbles in the New Century? The Great Rebalancing in Historical Perspective," NBER Working Papers 12580, National Bureau of Economic Research, Inc.
  5. Antonin Aviat & Nicolas Coeurdacier, 2004. "The geography of trade in goods and asset holdings," DELTA Working Papers 2004-10, DELTA (Ecole normale supérieure).
  6. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g708pipbp is not listed on IDEAS
  7. James Feyrer, 2009. "Trade and Income -- Exploiting Time Series in Geography," NBER Working Papers 14910, National Bureau of Economic Research, Inc.
  8. Michael D. Bordo, 2006. "Sudden Stops, Financial Crises, and Original Sin in Emerging Countries: Déjà vu?," NBER Working Papers 12393, National Bureau of Economic Research, Inc.
  9. Kris James Mitchener & Marc D. Weidenmier, 2005. "Supersanctions and Sovereign Debt Repayment," NBER Working Papers 11472, National Bureau of Economic Research, Inc.
  10. Sevket Pamuk & Jeffrey G. Williamson, 2009. "Ottoman De-Industrialization 1800-1913: Assessing the Shock, Its Impact and the Response," NBER Working Papers 14763, National Bureau of Economic Research, Inc.
  11. Keller, Wolfgang & Shiue, Carol Hua, 2008. "Tariffs, Trains, and Trade: The Role of Institutions versus Technology in the Expansion of Markets," CEPR Discussion Papers 6759, C.E.P.R. Discussion Papers.
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Cited by:
  1. repec:dgr:uvatin:2011018 is not listed on IDEAS
  2. Rui Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Economics Series Working Papers Number 89, University of Oxford, Department of Economics.
  3. Bos Jaap W.B. & Economidou Claire & Zhang Lu, 2011. "Specialization in the Presence of Trade and Financial Integration: Explorations of the Integration-Specialization Nexus," Research Memorandum 026, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Volosovych, Vadym, 2011. "Measuring financial market integration over the long run: Is there a U-shape?," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1535-1561.

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