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Can large reductions in trade costs break the path dependence of the location of economic activity? Can a large reduction in trade costs promote economic development?
@SebEllingsen JMP uses a super interesting large trade shock among Spanish colonies
https://sebastianellingsen.github.io/
@SebEllingsen JMP uses a super interesting large trade shock among Spanish colonies
https://sebastianellingsen.github.io/
The policy change is the elimination of trade restrictions among Spanish colonies in the 18th century. The Spanish empire allowed more ports in the American continent to trade goods with Europe. The reform reduced trade costs substantially among Spanish colonies.
Sebastian uses his data in a very creative way. He is able to build a dataset that includes trade costs, agricultural productivity, and market access for different locations of the Spanish Empire.
Using this data he analyzes how the changes in trade costs impact new settlements and population growth across different locations of the Spanish colonies. How does he get the population data across settlements? Using documents of the Spanish empire during the Bourbon period.
He finds super interesting results.
1st result: changes in trade costs impact population growth and incorporation of new settlements.
2nd result: Who benefits the most? The settlements with lower population density.
3rd result: peripheral regions benefit substantially.
1st result: changes in trade costs impact population growth and incorporation of new settlements.
2nd result: Who benefits the most? The settlements with lower population density.
3rd result: peripheral regions benefit substantially.
4th result: being close to the coast matters a lot. Trade induces population growth more.
What is the main mechanism? The regions that have high agricultural productivity in high-value export goods.
What is the main mechanism? The regions that have high agricultural productivity in high-value export goods.
Now, the paper gets more interesting!
Sebastian builds a dynamic spatial general equilibrium framework. He uses his data to estimate the parameters of the model and then simulates the effect of the reform.
(When I read this part I was like
).
Sebastian builds a dynamic spatial general equilibrium framework. He uses his data to estimate the parameters of the model and then simulates the effect of the reform.
(When I read this part I was like
).
What are the findings of the model? 1) lower population density leads makes the effects of the reform stronger. 2) if the reform occurs before, we'd observe a larger population density in 2010! 3) the long-run population distribution depends on when the trade-cost shock occurs.
Sebastian presented this paper in the EEA meetings. I think this paper is simply fantastic. The contributions are in several directions.
Contribution 1: Large reductions of trade costs change the location of economic activity (Econ Geography).
Contribution 2: Large reductions of trade costs can promote development in isolated areas (Trade/Development)
Contribution 2: Large reductions of trade costs can promote development in isolated areas (Trade/Development)
Contribution 3: The path dependence of population location is highly influenced by "the timing" of large changes in trade costs occur.
I like this paper a lot because it addresses classical questions in development and economic geography, and it addresses the question using both empirics and theory. Lastly, in an era where people question globalization, Sebastian's paper shows its importance for econ development
I will add another point. Historians in Latin America have been wondering for decades which features of the Spanish Empire had negative effects on the development of the region. We know some answers.
Sebastian finds a new one: the restrictive trade policies of the Spanish Empire
Sebastian finds a new one: the restrictive trade policies of the Spanish Empire
