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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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    References listed on IDEAS

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    2. 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).
    3. Stanislav Cernosa, 2011. "Openness to Trade, Migration and Foreign Direct Investments of the EU," WIFO Working Papers 401, WIFO.
    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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