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Cross-Country Heterogeneity and the Trade-Income Relationship

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  • Herzer, Dierk
Abstract
We examine the relationship between trade and income using heterogeneous panel cointegration techniques to account for the potential cross-country heterogeneity in the effects of trade. Our main results are: (i) trade has, on average, a statistically significant, but relatively small positive effect on income, (ii) there is considerable heterogeneity in the effects of trade on income across countries, and (iii) the effect of trade on income tends to be greater in countries with higher levels of education, with a lower share of primary commodities in total exports, less business and labor market regulations, higher institutional quality, and higher development levels.

Suggested Citation

  • Herzer, Dierk, 2013. "Cross-Country Heterogeneity and the Trade-Income Relationship," World Development, Elsevier, vol. 44(C), pages 194-211.
    • Handle: RePEc:eee:wdevel:v:44:y:2013:i:c:p:194-211
    DOI: 10.1016/j.worlddev.2012.09.014
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    More about this item

    Keywords

    trade; income; cross-country heterogeneity; panel cointegration; general-to-specific approach;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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