New research on trade and development by young economists
by Amit Khandelwal and David Atkin
March 30, 2020
It is an exciting time for research at the intersection of trade and development. This body of work studies how international trade affects economies that are characterized by various distortions, such as weak institutions and market failures. The field is combining the full range of methods – from structural general-equilibrium models to randomized controlled trials – to make progress on policy-relevant questions.
These topics were the focus of "Trade and Development", a one-day mini-conference we organized in collaboration with the Yale Economic Growth Center. The event took place on February 28, 2020, the day following Pinelopi Koujianou Goldberg's delivery of the 30th annual Kuznets Memorial Lecture, titled “Poverty Reduction in the Era of Waning Globalization.”
Penny had presented new analysis showing the dual importance of trade and boosting the middle class in generating growth alongside poverty reduction in developing countries.
In our conference, ten young faculty members from a wide range of institutions presented early work-in-progress on trade in developing countries. Each presentation examined how particular distortions in developing countries affect participation in global markets.
- Lorenzo Casaburi [1] and Tristan Reed [2] examined how distortions in land markets in Kenya and capital markets in India, respectively, may prevent efficient allocations of factors of production.
- Pamela Medina [6] examined the dynamic impacts of trade shocks in Peru, a setting where frictions lead to slow adjustments of capital.
- Ameet Morjaria [4] and Jonas Hjort [9] examined the implications of information frictions in Ethiopia’s coffee commodity exchange and government procurement in Liberia, respectively.
- Ben Faber [7] and Isabela Manelici [10] examined spillovers from Kenyan agricultural subsidy policies and Costa Rica’s FDI policies, respectively.
- Dina Pomeranz [3] used detailed firm-to-firm sales data to examine how trade affects workers in Ecuador, both directly for workers at trading companies and indirectly for firms supplying or competing with trading firms.
- Finally, Shoumitro Chatterjee [5] and Meredith Startz [8] examined intermediation and domestic trade frictions in India and Nigeria.
These projects use a variety of methods (RCTs [1,7,9], reduced-form methods [4,10], and quantitative models [2,3,5,6,7,8]), as well as a variety of data sources (tailored surveys [1,7,8], administrative data [3,4,9,10], national surveys [2,5,6]), and study a variety of regions (Africa [1,4,7,8,9] South Asia [2,5] Latin America [3,6,10]. This diverse mix of methods, data, and regions shows the many ways that young scholars are pushing the field forward.
Dani Rodrik of Harvard Kennedy School gave the keynote lunch talk on “The End of Growth Miracles”, and Amit Khandelwal concluded the conference with a presentation of his and David Atkin’s survey [11] of recent research intersection of trade and development. The survey outlines three broad characteristics of developing countries that shape the impacts of trade: weak institutions, market-level distortions, and firm-level distortions.
At the end of the presentation, they asked the conference participants to vote on topics that were the most ripe for future research. The results of the poll highlight several key areas where research is particularly lacking:
- improving our understanding of the impacts of domestic trade frictions,
- exploring contracting frictions in developing countries and their ramifications for trade, and
- measuring the firms and sectors for which externalities are largest and designing industrial policies to correct for the misallocation they induce.
