Advanced Search
MyIDEAS: Login to save this paper or follow this series

Cross-country heterogeneity and the trade-income relationship

Contents:

Author Info

  • Dierk Herzer

    ()
    (Bergische Universität Wuppertal / Germany)

Abstract

This paper makes the following contributions to the literature on the impact of trade on income. First, we use heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors to estimate the effect of trade on income for 75 developed and developing countries, both for the sample, as a whole, and for each individual country. Second, we use a general-to-specific variable-selection approach to identify important determinants of the effect of trade on income. Our main findings are: (i) A one-percent increase in the trade share of GDP results, on average, in a statistically significant increase in income per worker of about 0.18 percent. This result is in contrast to previous studies, which tend to produce either unreasonably large or statistically insignificant estimates of the impact of trade on income. (ii) There are large cross-country differences in the income effect of trade, in particular, between developed and developing countries. For developed countries the income effect of trade is positive, whereas trade has, on average, a negative impact on income in developing countries. (iii) The cross-country heterogeneity in the impact of trade on income can be explained mainly by cross-country differences in primary export dependence, labor market regulation, and property rights protection. The level of property rights protection is positively related, while the levels of primary export dependence and labor market regulation are negatively related to the income effect of trade.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wwwuser.gwdg.de/~fjohann/paper/DB209.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 209.

as in new window
Length: 38 pages
Date of creation: 07 Jan 2011
Date of revision:
Handle: RePEc:got:iaidps:209

Contact details of provider:
Postal: Platz des Göttinger Sieben 3, 37073 Göttingen
Phone: 0049-551-39 81 72
Fax: 0049-551-39 81 73
Email:
Web page: http://www.iai.wiwi.uni-goettingen.de
More information through EDIRC

Related research

Keywords: Trade; Income; Cross-country heterogeneity; Panel cointegration; General-to-specific approach;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(493), pages F22-F49, 02.
  2. Bonham, Carl S & Cohen, Richard H, 2001. "To Aggregate, Pool, or Neither: Testing the Rational-Expectations Hypothesis Using Survey Data," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(3), pages 278-91, July.
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  4. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, Econometric Society, vol. 55(5), pages 1035-56, September.
  5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  6. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May.
  7. Krishna, Kala & Yavas, Cemile, 2005. "When trade hurts: Consumption indivisibilities and labor market distortions," Journal of International Economics, Elsevier, Elsevier, vol. 67(2), pages 413-427, December.
  8. Edwards, Sebastian, 1988. "Terms of Trade, Tariffs, and Labor Market Adjustment in Developing Countries," World Bank Economic Review, World Bank Group, World Bank Group, vol. 2(2), pages 165-85, May.
  9. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 90(1), pages 1-44, May.
  10. Gabriel J. Felbermayr, 2005. "Dynamic Panel Data Evidence on the Trade-Income Relation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 141(4), pages 583-611, December.
  11. Lutkepohl, Helmut, 2007. "General-to-specific or specific-to-general modelling? An opinion on current econometric terminology," Journal of Econometrics, Elsevier, Elsevier, vol. 136(1), pages 319-324, January.
  12. Wan, Guanghua & Lu, Ming & Chen, Zhao, 2006. "The inequality-growth nexus in the short and long run: Empirical evidence from China," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 654-667, December.
  13. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  14. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 379-399, June.
  15. Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M., Universite Aix-Marseille III 96a09, Universite Aix-Marseille III.
  16. David N. DeJong & Marla Ripoll, 2006. "Tariffs and Growth: An Empirical Exploration of Contingent Relationships," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 625-640, November.
  17. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  18. David I. Harvey & Neil M. Kellard & Jakob B. Madsen & Mark E. Wohar, 2010. "The Prebisch-Singer Hypothesis: Four Centuries of Evidence," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 367-377, May.
  19. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199285679, October.
  20. Eleanor Doyle & Inmaculada Martinez-Zarzoso, 2011. "Productivity, Trade, and Institutional Quality: A Panel Analysis," Southern Economic Journal, Southern Economic Association, vol. 77(3), pages 726-752, January.
  21. Borrmann, Axel & Busse, Matthias & Neuhaus, Silke, 2006. "Institutional Quality and the Gains From Trade," HWWA Discussion Papers 341, Hamburg Institute of International Economics (HWWA).
  22. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3095, C.E.P.R. Discussion Papers.
  23. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  24. Holly, Sean & Pesaran, M. Hashem & Yamagata, Takashi, 2010. "A spatio-temporal model of house prices in the USA," Journal of Econometrics, Elsevier, Elsevier, vol. 158(1), pages 160-173, September.
  25. Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  26. Pandej Chintrakarn & Dierk Herzer & Peter Nunnenkamp, 2010. "FDI and Income Inequality: Evidence from a Panel of US States," Kiel Working Papers 1579, Kiel Institute for the World Economy.
  27. Andrew Downes & Nlandu Mamingi & Rose-Marie Belle Antoine, 2004. "Labor Market Regulation and Employment in the Caribbean," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 517-552 National Bureau of Economic Research, Inc.
  28. Roberto Chang, & Linda Kaltani & Norman Loayza, 2006. "Openness Can be Good for Growth: The Role of Policy Complementarities," Working Papers Central Bank of Chile, Central Bank of Chile 373, Central Bank of Chile.
  29. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3643, C.E.P.R. Discussion Papers.
  30. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  31. Keller, W., 1997. "Trade and the Transmission of Technology," Working papers, Wisconsin Madison - Social Systems 9620r, Wisconsin Madison - Social Systems.
  32. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers, Harvard - Institute for International Development 517a, Harvard - Institute for International Development.
  33. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
  34. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, 02.
  35. Kevin Hoover & Harris Dellas, 2003. "Truth and Robustness in Cross-country Growth Regressions," Working Papers, University of California, Davis, Department of Economics 11, University of California, Davis, Department of Economics.
  36. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, Elsevier, vol. 58(1), pages 1-18, October.
  37. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  38. Dawe, David, 1996. "A new look at the effects of export instability on investment and growth," World Development, Elsevier, Elsevier, vol. 24(12), pages 1905-1914, December.
  39. Herzer, Dierk, 2008. "The long-run relationship between outward FDI and domestic output: Evidence from panel data," Economics Letters, Elsevier, Elsevier, vol. 100(1), pages 146-149, July.
  40. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  41. Marcus J. Chambers, 2011. "Cointegration and sampling frequency," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 14(2), pages 156-185, 07.
  42. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  43. de Crombrugghe, Denis & Palm, Franz C & Urbain, Jean-Pierre, 1997. "Statistical Demand Functions for Food in the USA and the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(5), pages 615-37, Sept.-Oct.
  44. Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
  45. Xavier Sala-i-Martin, 1997. "I just ran four million regressions," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 201, Department of Economics and Business, Universitat Pompeu Fabra.
  46. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 283-306, March.
  47. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(2), pages 437-466, May.
  48. Peter Pedroni, 2001. "Purchasing Power Parity Tests in Cointegrated Panels," Department of Economics Working Papers, Department of Economics, Williams College 2001-01, Department of Economics, Williams College.
  49. James Feyrer, 2009. "Trade and Income -- Exploiting Time Series in Geography," NBER Working Papers 14910, National Bureau of Economic Research, Inc.
  50. Coe, David T. & Helpman, Elhanan, 1995. "International R&D spillovers," European Economic Review, Elsevier, Elsevier, vol. 39(5), pages 859-887, May.
  51. Caporale, Guglielmo Maria & Pittis, Nikitas, 1999. " Efficient Estimation of Cointegrating Vectors and Testing for Causality in Vector Autoregressions," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 1-35, February.
  52. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers, Department of Economics, Williams College 2004-15, Department of Economics, Williams College.
  53. Maurice J.G. Bun & Frank Windmeijer, 2009. "The Weak Instrument Problem of the System GMM Estimator in Dynamic Panel Data Models," Tinbergen Institute Discussion Papers 09-086/4, Tinbergen Institute.
  54. Freund, Caroline & Bolaky, Bineswaree, 2008. "Trade, regulations, and income," Journal of Development Economics, Elsevier, Elsevier, vol. 87(2), pages 309-321, October.
  55. Panicos Demetriades & Kul B. Luintel, 1995. "The Direct Costs of Financial Repression: Evidence from India," Keele Department of Economics Discussion Papers (1995-2001), Department of Economics, Keele University 95/12, Department of Economics, Keele University.
  56. Natalia Ponomareva & Hajime Katayama, 2010. "Does the version of the Penn World Tables matter? An analysis of the relationship between growth and volatility," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 43(1), pages 152-179, February.
  57. David T. Coe & Elhanan Helpman & Alexander W. Hoffmaister, 2008. "International R&D Spillovers and Institutions," NBER Working Papers 14069, National Bureau of Economic Research, Inc.
  58. repec:fth:stanho:e-92-3 is not listed on IDEAS
  59. Rodríguez, Francisco & Rodrik, Dani, 1999. "Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2143, C.E.P.R. Discussion Papers.
  60. Dierk Herzer, 2007. "How does trade composition affect productivity? Evidence for Chile," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(12), pages 909-912.
  61. Paul Collier & P. Guillaumont & S. Guillaumont Jeanneney & Jan Willem Gunning, 1999. "Reforming Stabex," The World Economy, Wiley Blackwell, vol. 22(5), pages 669-682, 07.
  62. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(1), pages 133-162, January.
  63. Herzer, Dierk & Schrooten, Mechthild, 2008. "Outward FDI and domestic investment in two industrialized countries," Economics Letters, Elsevier, Elsevier, vol. 99(1), pages 139-143, April.
  64. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 79-113, July.
  65. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  66. Peter Pedroni, 2004. "Social Capital, Barriers to Production, and Capital Shares: Implications for the Importance of Parameter Heterogeneity from a Nonstationary Panel Approach," Department of Economics Working Papers, Department of Economics, Williams College 2004-03, Department of Economics, Williams College.
  67. Hall, Stephen G & Milne, Alistair, 1994. "The Relevance of P-Star Analysis to UK Monetary Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 597-604, May.
  68. Noguer, Marta & Siscart, Marc, 2005. "Trade raises income: a precise and robust result," Journal of International Economics, Elsevier, Elsevier, vol. 65(2), pages 447-460, March.
  69. de Crombrugghe, Denis & Palm, Franz C & Urbain, Jean-Pierre, 1997. "Statistical Demand Functions for Food in the USA and the Netherlands: Reply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(5), pages 643-45, Sept.-Oct.
  70. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  71. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  72. Entorf, Horst, 1997. "Random walks with drifts: Nonsense regression and spurious fixed-effect estimation," Journal of Econometrics, Elsevier, Elsevier, vol. 80(2), pages 287-296, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Krenz, Astrid, 2013. "Political institutions and trade-evidence for the long-run relationship and causality," Center for European, Governance and Economic Development Research Discussion Papers 182, University of Goettingen, Department of Economics.
  2. Herzer, Dierk, 2014. "Unions and income inequality: a heterogenous cointegration and causality analysis," Working Paper, Helmut Schmidt University, Hamburg 146/2014, Helmut Schmidt University, Hamburg.
  3. Herzer, Dierk & Strulik, Holger, 2013. "Religiosity and income: A panel cointegration and causality analysis," Center for European, Governance and Economic Development Research Discussion Papers 168, University of Goettingen, Department of Economics.
  4. Kurt A. Hafner & David Mayer-Foulkes, 2012. "Fertility, Human Development, and Economic Growth: Long- term Short-term Causal Links," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c017_024, DEGIT, Dynamics, Economic Growth, and International Trade.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:got:iaidps:209. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Jaep).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.