Working Paper: CEPR ID: DP10026
Authors: Pablo Fajgelbaum; Stephen J. Redding
Abstract: This paper uses the natural experiment of Argentina's integration into world markets in the late-nineteenth century to provide evidence on the role of internal geography in shaping the effects of external integration. We develop a quantitative model of the distribution of economic activity across regions and sectors. The model predicts a spatial Balassa-Samuelson effect, in which locations with better access to world markets have higher population densities, higher shares of employment in the non-traded sector, higher relative prices of non-traded goods, and higher land prices relative to wages. We use the model and data on population density and sectoral employment shares to recover sufficient statistics that isolate the economic mechanisms through which external and internal integration affect economic development. Our analysis highlights the role of complementary investments in internal infrastructure and technology adoption in mediating the economy's response to external integration.
Keywords: Economic Development; External Integration; Structural Transformation
JEL Codes: F11; F14; O13; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Argentina's integration into world markets (F15) | significant export boom (F10) |
| significant export boom (F10) | shift in agricultural specialization (Q19) |
| shift in agricultural specialization (Q19) | technological innovations (O33) |
| technological innovations (O33) | reduced transport costs (R49) |
| reduced transport costs (R49) | greater access to international markets (F69) |
| external integration (O36) | complementary investments in internal infrastructure (H54) |
| external integration (O36) | technology adoption (O33) |
| external integration (O36) | economic development outcomes (O29) |
| lower trade costs (F19) | higher relative prices for nontraded goods (P22) |
| lower trade costs (F19) | greater employment in the nontraded sector (J68) |
| external integration (O36) | urbanization (R11) |
| external integration (O36) | structural transformation (L16) |
| reducing Argentina's frontiers (N96) | substantial decreases in real wages (F66) |