Working Paper: NBER ID: w20217
Authors: Pablo Fajgelbaum; Stephen J. Redding
Abstract: We provide new theory and evidence on the role of external and internal integration in structural transformation and economic development using Argentina’s integration into the world economy in the late-19th century. Our theoretical model provides microfoundations for a spatial Balassa-Samuelson effect, in which locations closer to world markets have higher population densities, urban population shares, relative prices of non-traded goods, and land prices relative to wages, and specialize in transport-cost-sensitive traded goods. We estimate the model’s parameters, provide evidence in support of this spatial Balassa-Samuelson mechanism, and find substantial effects of both external and internal integration on economic development.
Keywords: trade; structural transformation; economic development; Argentina; Balassa-Samuelson effect
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 |
|---|---|
| Reductions in transatlantic freight rates (L93) | GDP (E20) |
| Reductions in transatlantic freight rates (L93) | Population (J11) |
| Reductions in transatlantic freight rates (L93) | Welfare (I38) |
| Construction of the railroad network (N61) | GDP (E20) |
| Construction of the railroad network (N61) | Population (J11) |
| Construction of the railroad network (N61) | Welfare (I38) |
| Locations closer to world markets (R32) | Higher population densities (R23) |
| Locations closer to world markets (R32) | Urban population shares (R23) |
| Locations closer to world markets (R32) | Relative prices of nontraded goods (P22) |
| Locations closer to world markets (R32) | Land prices relative to wages (J31) |
| Population density (J11) | Land prices relative to wages (J31) |
| International population mobility (J61) | Impact of railroad construction on welfare (D69) |