Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa

49 Pages Posted: 25 Jun 2019

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Harold Coulombe

World Bank

Brian Blankespoor

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: June 15, 2019

Abstract

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 spatial distribution of employment and resource allocation? To analyze this, we exploit the civil war in Cote d’Ivoire (2002-2007) that disrupted access to world market for two neighboring land-locked countries: Mali and Burkina Faso. The Ivorian war forced rerouting of trade from the Abidjan route to the non-Abidjan routes. We build a general equilibrium model where a subsistence-based autarkic hinterland coexists with an integrated segment, and there are two alternative routes to international market. A trade shock to one route affects resource allocation in both routes by shifting 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 in non-Abidjan route using a triple difference design with location fixed effect. The areas that remain in autarkic equilibrium both 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. We find evidence of persistence in the effects through higher sunk investment in built-up density, agglomeration through concentration of skilled labor, and more public investment in complementary inputs such as electricity infrastructure (measured by night-lights density).

Keywords: Temporary Trade Restrictions, Regional Development, Structural Change in Employment, Persistence, Path-Dependence, Built-up Density, Skill Agglomeration, Provision of Electricity, Night-Lights

JEL Classification: F15, F16, O24, O55

Suggested Citation

Emran, M. Shahe and Shilpi, Forhad and Coulombe, Harold and Blankespoor, Brian, Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa (June 15, 2019). Available at SSRN: https://ssrn.com/abstract=3406902 or http://dx.doi.org/10.2139/ssrn.3406902

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

Harold Coulombe

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Brian Blankespoor

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, NW
Washington, DC 20433
United States

HOME PAGE: http://https://sites.google.com/site/decrgbrianblankespoor/

Register to save articles to
your library

Register

Paper statistics

Downloads
5
Abstract Views
85
PlumX Metrics