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A further investigation of the link between trade and income

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  • Jan Ondrich
  • J. David Richardson
  • Shuo Zhang

Abstract

The link between openness and income has received increasing attention as countries try to justify their trade-promoting policies. Recent work of Frankel & Romer (1999) examines the effect of trade on income. We explore how the estimates of the trade effect change when we relax their assumption of heteroscedasticity in the bilateral trade equation they use to construct the instrument for the IV regression. Because the instrument is constructed through a nonlinear transformation, unequal disturbance variances imply inconsistency and not just inefficiency of the Frankel-Romer estimates. We find a smaller positive effect of trade than that found by Frankel & Romer.

Suggested Citation

  • Jan Ondrich & J. David Richardson & Shuo Zhang, 2006. "A further investigation of the link between trade and income," International Economic Journal, Taylor & Francis Journals, vol. 20(1), pages 19-36.
    • Handle: RePEc:taf:intecj:v:20:y:2006:i:1:p:19-36
    DOI: 10.1080/10168730500515464
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    2. Stimpfle, Alexander & Stadelmann, David, 2015. "The Impact of Fundamental Development Factors on Different Income Groups: International Evidence," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113128, Verein für Socialpolitik / German Economic Association.
    3. Thando Vilakazi & Anthea Paelo, 2017. "Understanding intra-regional transport: Competition in road transportation between Malawi, Mozambique, South Africa, Zambia, and Zimbabwe," WIDER Working Paper Series wp-2017-46, World Institute for Development Economic Research (UNU-WIDER).
    4. Thando Vilakazi & Anthea Paelo, 2017. "Understanding intra-regional transport: Competition in road transportation between Malawi, Mozambique, South Africa, Zambia, and Zimbabwe," WIDER Working Paper Series 046, World Institute for Development Economic Research (UNU-WIDER).

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