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Openness and Income Dispaities: Does Trade Explain the 'Mezzogiorno' Effect?

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  • Claudia M. Buch
  • Paola Monti

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Abstract

Many theoretical models show that trade openness has positive welfare implications. Yet, openness might affect different social groups and regions asymmetrically, even within a given country. We use Italian regional data to answer the question whether trade openness affects within-country income differentials. In Italy, the more affluent regions are internationally more open than poorer ones not only with respect to trade in goods, but also with respect to FDI and international migration. Prima facie, there is a positive correlation between openness and per capita income. Studying this relationship empirically requires taking into account the endogenous component of openness. We apply panel cointegration and instrumental variables techniques to account for the endogeneity of trade. Our results show a positive link between trade openness and the level of income per capita.

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Bibliographic Info

Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 41.

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Length: 39 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:iaw:iawdip:41

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Keywords: Openness; growth; regional income disparities; Italian regions;

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References

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  1. Robert E. Baldwin, 2003. "Openness and Growth: What's the Empirical Relationship?," NBER Working Papers 9578, National Bureau of Economic Research, Inc.
  2. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
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  12. Francisco Rodríguez, 2006. "Openness and Growth: What Have We Learned?," Wesleyan Economics Working Papers 2006-011, Wesleyan University, Department of Economics.
  13. Matthias Helble, 2006. "Border Effect Estimates for France and Germany Combining International Trade and Intra-national Transport Flows," IHEID Working Papers 13-2006, Economics Section, The Graduate Institute of International Studies, revised Jun 2006.
  14. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  15. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
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  17. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
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Cited by:
  1. Stanislav Cernosa, 2011. "Openness to Trade, Migration and Foreign Direct Investments of the EU," WIFO Working Papers 401, WIFO.

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