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

52 Pages Posted: 7 Aug 2019 Last revised: 26 Aug 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: August 6, 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 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).

Keywords: International Trade and Trade Rules, Construction Industry, Common Carriers Industry, Food & Beverage Industry, General Manufacturing, Pulp & Paper Industry, Textiles, Apparel & Leather Industry, Plastics & Rubber Industry, Business Cycles and Stabilization Policies, Armed Conflict, Transport Services, Food Security

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 (August 6, 2019). World Bank Policy Research Working Paper No. 8962. Available at SSRN: https://ssrn.com/abstract=3433469

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

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Forhad Shilpi

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

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Harold Coulombe

World Bank ( email )

1818 H Street, N.W.
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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/

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