IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/22946.html
   My bibliography  Save this paper

How Large Are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture, 1880-1997

Author

Listed:
  • Arnaud Costinot
  • Dave Donaldson

Abstract

In this paper we develop a new approach to measuring the gains from economic integration based on a generalization of the Ricardian model in which heterogeneous factors of production are allocated to multiple sectors in multiple local markets based on comparative advantage. We implement this approach using data on crop markets in approximately 2,600 U.S. counties from 1880 to 1997. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown—an essential input for measuring the gains from trade. Using this new approach we find substantial long-run gains from economic integration among US agricultural markets, benefits that are similar in magnitude to those due to productivity improvements over that same period.

Suggested Citation

  • Arnaud Costinot & Dave Donaldson, 2016. "How Large Are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture, 1880-1997," NBER Working Papers 22946, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22946
    Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w22946.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas F. Cooley & Steven J. DeCanio & M. Scott Matthews, 1977. "An Agricultural Time Series-Cross Section Data Set," NBER Working Papers 0197, National Bureau of Economic Research, Inc.
    2. Nathan Nunn & Nancy Qian, 2011. "The Potato's Contribution to Population and Urbanization: Evidence From A Historical Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 593-650.
    3. Jose Asturias & Manuel García-Santana & Roberto Ramos, 2019. "Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India," Journal of the European Economic Association, European Economic Association, vol. 17(6), pages 1881-1940.
    4. Treb Allen & Costas Arkolakis, 2014. "Trade and the Topography of the Spatial Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 129(3), pages 1085-1140.
    5. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    6. Gilles Duranton & Matthew A. Turner, 2012. "Urban Growth and Transportation," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1407-1440.
    7. Guy Michaels, 2008. "The Effect of Trade on the Demand for Skill: Evidence from the Interstate Highway System," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 683-701, November.
    8. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    9. Guy Black, 1955. "Agricultural Interest in the Regulation of Truck Transportation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 37(3), pages 439-451.
    10. Natalia Ramondo & Andrés Rodríguez-Clare & Milagro Saborío-Rodríguez, 2016. "Trade, Domestic Frictions, and Scale Effects," American Economic Review, American Economic Association, vol. 106(10), pages 3159-3184, October.
    11. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, July.
    12. Matthew Slaughter, 2001. "Does trade liberalization converge factor prices? Evidence from the antebellum transportation revolution," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(3), pages 339-362.
    13. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence From Argentina," CEP Discussion Papers dp1273, Centre for Economic Performance, LSE.
    14. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    15. Simon Alder, 2015. "Chinese Roads in India: The Effect of Transport Infrastructure on Economic Development," 2015 Meeting Papers 1447, Society for Economic Dynamics.
    16. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, Decembrie.
    17. Benjamin Bridgman & Shi Qi & James A. Schmitz, 2015. "Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74," Staff Report 519, Federal Reserve Bank of Minneapolis.
    18. Redding, Stephen & Fajgelbaum, Pablo, 2014. "External Integration, Structural Transformation and Economic Development: Evidence from Argentina 1870-1914," CEPR Discussion Papers 10026, C.E.P.R. Discussion Papers.
    19. Arnaud Costinot & Dave Donaldson & Cory Smith, 2016. "Evolving Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 205-248.
    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


    Cited by:

    1. Alexander Klein & Karl Gunnar Persson & Paul Sharp, 2023. "Populism and the first wave of globalization: Evidence from the 1892 US presidential election," Rivista di storia economica, Società editrice il Mulino, issue 2, pages 163-202.
    2. Stark, Oded & Zawojska, Ewa & Kohler, Wilhelm & Szczygielski, Krzysztof, 2018. "An adverse social welfare effect of a doubly gainful trade," Journal of Development Economics, Elsevier, vol. 135(C), pages 77-84.
    3. Blankespoor, Brian & Emran, M. Shahe & Shilpi, Forhad & Xu, Lu, 2018. "Transport Costs, Comparative Advantage, and Agricultural Development: Evidence from Jamuna Bridge in Bangladesh," MPRA Paper 86630, University Library of Munich, Germany.
    4. Thibault Fally & James Sayre, 2018. "Commodity Trade Matters," 2018 Meeting Papers 172, Society for Economic Dynamics.
    5. Bruno Morando, 2023. "Subsistence Farming and Factor Misallocation: Evidence from Ugandan Agriculture," The World Bank Economic Review, World Bank Group, vol. 37(4), pages 570-598.
    6. Juan Soto & Milena Vargas & Julio A. Berdegué, 2018. "How Large Are the Contributions of Cities to the Development of Rural Communities? A Market Access Approach for a Quarter Century of Evidence from Chile," Documentos de Trabajo 17060, The Latin American and Caribbean Economic Association (LACEA).
    7. Jie Bai & Jiahua Liu, 2019. "The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China," CID Working Papers 373, Center for International Development at Harvard University.
    8. Le, Kien, 2020. "Land use restrictions, misallocation in agriculture, and aggregate productivity in Vietnam," Journal of Development Economics, Elsevier, vol. 145(C).
    9. Paul Blanchard & Douglas Gollin & Martina Kirchberger, 2023. "Perpetual Motion: High-Frequency Human Mobility in Three African Countries," Trinity Economics Papers tep0823, Trinity College Dublin, Department of Economics.
    10. Bruno Morando, 2024. "Testing the GAEZ agronomic model in the fields:Evidence from Uganda," Economics Department Working Paper Series n320-24.pdf, Department of Economics, National University of Ireland - Maynooth.
    11. Paul Blanchard & Douglas Gllin & Martina Kirchberger, 2020. "Perpetual Motion: Human Mobility and Spatial Frictions in Three African Countries," CSAE Working Paper Series 2020-18, Centre for the Study of African Economies, University of Oxford.
    12. Tasso Adamopoulos & Diego Restuccia, 2022. "Geography and Agricultural Productivity: Cross-Country Evidence from Micro Plot-Level Data," Review of Economic Studies, Oxford University Press, vol. 89(4), pages 1629-1653.
    13. Hanlon, W.Walker & Heblich, Stephan, 2022. "History and urban economics," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    14. Bruno Morando, 2023. "Subsistence Farming and Factor Misallocation: Evidence from Ugandan Agriculture," The World Bank Economic Review, World Bank Group, vol. 37(4), pages 570-598.
    15. Amodio, Francesco & Baccini, Leonardo & Chiovelli, Giorgio & Di Maio, Michele, 2023. "Trade Liberalization, Economic Activity, and Political Violence in the Global South: Evidence from PTAs," IZA Discussion Papers 16011, Institute of Labor Economics (IZA).
    16. Gouel, Christophe & Laborde, David, 2021. "The crucial role of domestic and international market-mediated adaptation to climate change," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    17. Heerman, Kari E.R., 2020. "Technology, ecology and agricultural trade," Journal of International Economics, Elsevier, vol. 123(C).
    18. Luca Salvatici & Silvia Nenci, 2017. "New features, forgotten costs and counterfactual gains of the international trading system," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 44(4), pages 592-633.
    19. Colin A. Carter & Shon M. Ferguson, 2019. "Deregulation and regional specialization: Evidence from Canadian agriculture," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1497-1522, November.
    20. Bruno Morando, 2022. "Aggregate productivity and inefficient cropping patterns in Uganda," Journal of Productivity Analysis, Springer, vol. 58(2), pages 221-237, December.
    21. Treb Allen & David Atkin, 2022. "Volatility and the Gains From Trade," Econometrica, Econometric Society, vol. 90(5), pages 2053-2092, September.
    22. Calil, Yuri Clements Daglia & Ribera, Luis A., 2020. "EU–Mercosur Free Trade Agreement: Implications for Agriculture," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304548, Agricultural and Applied Economics Association.
    23. Bruno Morando, 2021. "Market access and inefficient cropping patterns in Uganda," Economics Department Working Paper Series n309-21.pdf, Department of Economics, National University of Ireland - Maynooth.
    24. Jason Query, 2020. "Differing trade elasticities for intra‐ and international distances: A gravity approach," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 913-929, August.
    25. Kym Anderson, 2023. "Why did agriculture’s share of Australian GDP not decline for a century?," Departmental Working Papers 2023-09, The Australian National University, Arndt-Corden Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pablo D. Fajgelbaum & Edouard Schaal, 2020. "Optimal Transport Networks in Spatial Equilibrium," Econometrica, Econometric Society, vol. 88(4), pages 1411-1452, July.
    2. Redding, Stephen J. & Turner, Matthew A., 2015. "Transportation Costs and the Spatial Organization of Economic Activity," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1339-1398, Elsevier.
    3. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    4. Xu, Yang & Yang, Xi, 2021. "Access to ports and the welfare gains from domestic transportation infrastructure," Journal of Urban Economics, Elsevier, vol. 126(C).
    5. Baum-Snow, Nathaniel & Henderson, J. Vernon & Turner, Matthew A. & Zhang, Qinghua & Brandt, Loren, 2020. "Does investment in national highways help or hurt hinterland city growth?," Journal of Urban Economics, Elsevier, vol. 115(C).
    6. Taylor Jaworski & Carl T. Kitchens, 2019. "National Policy for Regional Development: Historical Evidence from Appalachian Highways," The Review of Economics and Statistics, MIT Press, vol. 101(5), pages 777-790, December.
    7. Jaimovich, Esteban, 2019. "Roadways, input sourcing, and patterns of specialization," European Economic Review, Elsevier, vol. 120(C).
    8. Gorton,Nicole Emily & Ianchovichina,Elena, 2021. "Trade Networks in Latin America : Spatial Inefficiencies and Optimal Expansions," Policy Research Working Paper Series 9843, The World Bank.
    9. Sheng, Yu & Zhao, Yuhan & Zhang, Qian & Dong, Wanlu & Huang, Jikun, 2022. "Boosting rural labor off-farm employment through urban expansion in China," World Development, Elsevier, vol. 151(C).
    10. Nelson Lind & Natalia Ramondo, 2023. "Trade with Correlation," American Economic Review, American Economic Association, vol. 113(2), pages 317-353, February.
    11. Gáfaro, Margarita & Pellegrina, Heitor S., 2022. "Trade, farmers’ heterogeneity, and agricultural productivity: Evidence from Colombia," Journal of International Economics, Elsevier, vol. 137(C).
    12. Pellegrina, Heitor S., 2022. "Trade, productivity, and the spatial organization of agriculture: Evidence from Brazil," Journal of Development Economics, Elsevier, vol. 156(C).
    13. Fei, Xuan, 2022. "Trade liberalization and structural changes: Prefecture-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 103-126.
    14. Yang Yang, 2018. "Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China," IMF Working Papers 2018/276, International Monetary Fund.
    15. Santamaria, Marta, 2020. "Reshaping Infrastructure: Evidence from the division of Germany," The Warwick Economics Research Paper Series (TWERPS) 1244, University of Warwick, Department of Economics.
    16. Nelson Lind & Natalia Ramondo, 2018. "Innovation, Knowledge Diffusion, and Globalization," NBER Working Papers 25071, National Bureau of Economic Research, Inc.
    17. Brülhart, Marius & Carrère, Céline & Robert-Nicoud, Frédéric, 2018. "Trade and towns: Heterogeneous adjustment to a border shock," Journal of Urban Economics, Elsevier, vol. 105(C), pages 162-175.
    18. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    19. Santamaria, Marta, 2020. "Reshaping Infrastructure : Evidence from the division of Germany," CAGE Online Working Paper Series 456, Competitive Advantage in the Global Economy (CAGE).
    20. Stephen J. Redding, 2022. "Suburbanization in the USA, 1970–2010," Economica, London School of Economics and Political Science, vol. 89(S1), pages 110-136, June.

    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:22946. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.