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The Role of History in Bilateral Trade Flows

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  • Barry Eichengreen
  • Douglas A. Irwin

Abstract

This paper investigates the theory and evidence that history plays a role in shaping the direction of international trade. Because there are reasons to anticipate a positive correlation between the predominant direction of trade flows in the past and membership in preferential arrangements in the present, there may be a tendency to spuriously attribute to preferential arrangements the effects of historical factors and to exaggerate the influence of the former. Thus, the standard gravity-model formulation, which neglects the role of historical factors, suffers from omitted-variables bias. We illustrate these points by analyzing the evolution of trade between 1949 and 1964. We find that historical factors exercise an important influence on trade even after controlling for the arguments of the standard gravity model.

Suggested Citation

  • Barry Eichengreen & Douglas A. Irwin, 1996. "The Role of History in Bilateral Trade Flows," NBER Working Papers 5565, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5565 Note: ITI
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    12. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
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