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

Emran, M. Shahe and Shilpi, Forhad and Coulombe, Harold and Blankespoor, Brian (2019): Temporary Trade Shocks, Spatial Reallocation, and Persistence in Developing Countries: Evidence from a Natural Experiment in West Africa.

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 the 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).

• Item Type: MPRA Paper
• Language: English
• Keywords: Temporary Trade Restrictions, Regional Development, Structural Change in Employment, Persistence, Path-Dependence, Built-up Density, Skill Agglomeration, Provision of Electricity, Night-Lights
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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