National borders matterwhere one draws the lines too
The fact that crossing a political border dramatically reduces trade flows has been widely documented in the literature. The increasing number of borders has surprisingly attracted much less attention. The number of independent countries has indeed risen from 72 in 1948 to 192 today. This paper estimates the effect of political disintegration since World War II on the measured growth in world trade. We first show that trade statistics should be considered carefully when assessing globalization over time, since the definition of trade partners varies over time. We document a sizeable resulting accounting artefact, which accounts for 17% of world trade in 2007. Second, based on a structural gravity equation, we estimate that since World War II political disintegration alone has raised measured international trade flows by 7% but decreased actual trade flows (including inter-regional trade) by 2%.
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Volume (Year): 46 (2013)
Issue (Month): 1 (February)
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