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Revisiting Trade and Income in the New Era of Globalisation—Distance, Big Boats and Natural Barriers to Trade

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  • Anil Gogebakan

Abstract

This paper investigates the relationship between international trade and income, exploiting a dynamic distance measure generated by the growth of container ships and Panama Canal capacity. Employing a version of the gravity model, this paper constructs an instrument for trade that accounts for bilateral trade flow differences driven by the Panama Canal and big ships. I exploit the created instrument, given its purely geography‐based nature, to estimate the impact of trade on income between 2002 and 2022. This paper finds a trade elasticity of income at 0.4, indicating that a one‐dollar increase in trade translates into a 40‐cent higher income on average. Compared to earlier studies, this indicates a more pronounced impact of trade on income in the recent era of globalisation.

Suggested Citation

  • Anil Gogebakan, 2025. "Revisiting Trade and Income in the New Era of Globalisation—Distance, Big Boats and Natural Barriers to Trade," The World Economy, Wiley Blackwell, vol. 48(4), pages 886-921, April.
    • Handle: RePEc:bla:worlde:v:48:y:2025:i:4:p:886-921
    DOI: 10.1111/twec.13667
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