Does Trade Cause Capital to Flow? Evidence from Historical Rainfalls
AbstractEstimating 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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Date of creation: May 2010
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- Kalemli-Ozcan, Sebnem & Nikolsko-Rzhevskyy, Alex, 2011. "Does Trade Cause Capital to Flow? Evidence from Historical Rainfalls," CEPR Discussion Papers 8550, C.E.P.R. Discussion Papers.
- F10 - International Economics - - Trade - - - General
- F30 - International Economics - - International Finance - - - General
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative
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