30 septembre 2011

Market access and economic development

Ci-dessous un texte initialement non destiné au blog (car en globish) sur l'accès au marché et le développement, mais ayant la flemme de traduire je vous le livre sans plus d'efforts considérant que c'est tout de même très accessible.

"Do countries with lower barriers to international trade experience faster economic progress? Few questions have been more vigorously debated in the history of economic thought, and none is more central to the vast literature on trade and development."
Rodriguez and Rodrick (2000)

Anti-globalization activists are against international trade because they believe that trade liberalization fosters international income inequalities. Economists have plenty of theoretical models to prove that trade liberalization is a Pareto improvement and CGE models to show the benefits of tariffs cuts. However, when turning to the data, evidences were scarce at first according to Frankel and Romer (1999). In the same vein Rodriguez and Rodrick (2000) show a weak negative relationship between GDP and trade protection which is not statistically significant. This result is reported below by Figure 1 for two measures of trade restrictions.

But recent papers have challenged this conclusion and have shown that determinants of trade, such as geography, impact positively on growth (Frankel and Romer, 1999) and on incomes disparities (Redding and Venables, 2004). These findings need to be critically analysed because by judging of the high number of citations in publications from international institutions or in textbooks, these researches may have a strong impact in economic thought and on public policies.

The difficulty met by the researcher in studying the impact of trade on income is the endogeneity of trade. Thus to understand the impact of trade, one needs a good tool that decomposes its determinants in order to find those which are non-related to income, chosen as natural instruments. The trade gravity equation is the good tool for such a work in reason of its great explanatory power of the trade variance.
The trade gravity literature has identified three main variables that strongly impact on bilateral trade and then represent good instruments : market access (also called outward resistance), supplier access (also called inward resistance) and bilateral distances.
Redding and Venables (2004) were the first to analyze the impact of these variables on incomes disparities. They find a striking result: the correlation coefficients between the trade/GDP ratio and the market and supplier access are 0.14 and 0.37 after controlling for technology and other determinants of income levels (endowment in resources, climate, institutions, etc.). Without any control the slope of the relationship that links GDP per capita to market access, represented in Figure 2 (borrowed from Boulhol and de Serre, 2010), decrease from 0.5 when the world is taken into account to 0.09 when the analysis focuses on OECD countries. This coefficient decreases again when the sample is reduced to high-income countries of the OECD.
Thus the strong relationship between market access and income seems to concern mainly developing countries. This analysis thus indicates the importance of trade for development.

F. Candau

  • Boulhol and de Serres (2010), "Have developed countries escaped the curse of distance", Journal of Economic Geography, vol 1°(1)
  • Frankel and Romer (1999), "Does trade causes growth", American Economic Review, vol 59(3) pp 379
  • Head and Mayer (2010), Gravity, "market potential and economic development", Journal of Economic Geography, pp 1-14
  • Redding and Venables (2004), "Economic geography and international inequity", Journal of International Economics, 62(2004), pp 53-82
  • Rodriguez and Rodrick (2000), "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross National Evidence", NBER Macroeconomics Annual, Vol 15 pp 261-325

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