Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom?

80 Pages Posted: 23 Nov 2021 Last revised: 10 Aug 2022

See all articles by David Atkin

David Atkin

Massachusetts Institute of Technology (MIT) - Department of Economics

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Masao Fukui

Massachusetts Institute of Technology (MIT)

Date Written: November 2021

Abstract

We study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country’s pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs because: (i) the average complexity of a country’s industry mix raises its capability growth, and (ii) foreign competition is tougher in less complex sectors for all countries. Empirically, we provide causal evidence consistent with (i) using the entry of countries into the World Trade Organization as an instrumental variable for other countries’ patterns of specialization. The opposite of (ii), however, appears to hold in the data. Through the lens of our model, these two empirical observations imply dynamic welfare losses from trade that are small for the median country, but pervasive and large among a number of African countries.

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Suggested Citation

Atkin, David G. and Costinot, Arnaud and Costinot, Arnaud and Fukui, Masao, Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom? (November 2021). NBER Working Paper No. w29500, Available at SSRN: https://ssrn.com/abstract=3968723

David G. Atkin (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Masao Fukui

Massachusetts Institute of Technology (MIT) ( email )

Cambridge, MA
United States

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