Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries : Evidence from a Natural Experiment in West Africa
In response to rising inequality following decades of trade liberalization, many countries are adopting trade restrictions. Can temporary trade restrictions have long-lasting effects on the spatial distribution of employment and resource allocation...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/932731565100891105/Temporary-Trade-Shocks-Spatial-Reallocation-and-Persistence-in-Developing-Countries-Evidence-from-a-Natural-Experiment-in-West-Africa http://hdl.handle.net/10986/32214 |
| Summary: | In response to rising inequality
following decades of trade liberalization, many countries
are adopting trade restrictions. Can temporary trade
restrictions have long-lasting effects on the spatial
distribution of employment and resource allocation? To
analyze this, this paper exploits the civil war in Côte
d'Ivoire (2002-07), which disrupted access to the world
market for two neighboring landlocked countries: Mali and
Burkina Faso. The Ivorian war forced rerouting of trade from
the Abidjan route to non-Abidjan routes. This paper builds a
general equilibrium model where a subsistence-based autarkic
hinterland coexists with an integrated segment, and there
are two alternative routes to international markets. A trade
shock to one route affects resource allocation in both
routes by shifting the spatial margins of market integration
and sectoral specialization. The effects are heterogeneous,
depending on the pre-war market access of a location. The
empirical analysis takes advantage of panel data and
estimates the effects on structural change in employment on
the non-Abidjan route using a triple difference design with
location fixed effects. The areas that remain in autarkic
equilibrium before and after the trade shock provide
plausible estimates of the changes arising from long-term
factors unrelated to the trade shock. The estimates show
that the temporary trade shock created divergence between
the Abidjan and non-Abidjan routes, with accelerated
structural change in favor of manufacturing and services
employment in the non-Abidjan route. This paper finds
evidence of persistence in the effects through higher sunk
investment in built-up density, agglomeration through
concentration of skilled labor and greater public investment
in complementary inputs such as electricity infrastructure
(measured by nightlights density). |
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