Working Paper: NBER ID: w20851
Authors: Michael Huberman; Christopher M. Meissner; Kim Oosterlinck
Abstract: In the Belle Époque, Belgium recorded an unprecedented trade boom, but growth in output per capita was lackluster. We seek to reconcile this ostensible paradox. Because of the sharp decline in both fixed and variable trade costs, the trade boom was as much about the expansion in the number of products delivered and markets served as it was about shipping more of the same old products. We use a new highly disaggregated data set on bilateral exports at the product level to illustrate these claims. In line with new trade theory, the effect of trade on productivity was mediated by sector-level firm heterogeneity and product differentiation. In new technology sectors, like tramways, the high degree of firm heterogeneity amplified the effect of trade on productivity. But in other sectors, mainly old staple industries like cotton textiles, a high level of firm uniformity muted the effect of trade. Into the twentieth century, old staples trumped new technology sectors, per capita income growing modestly as a result.
Keywords: Trade Boom; Product Differentiation; Firm Heterogeneity; Belgium; Second Industrial Revolution
JEL Codes: F14; F15; N73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sharp decline in both fixed and variable trade costs (F12) | trade boom in Belgium (N14) |
| sharp decline in both fixed and variable trade costs (F12) | number of products exported (F10) |
| trade costs (F19) | productivity (O49) |
| sector-level firm heterogeneity (D21) | productivity gains from trade (O49) |
| uniformity among firms (L20) | muted productivity gains from trade in staple industries (F14) |
| fall in trade costs (F19) | previously uncompetitive firms entering export activities (F23) |
| previously uncompetitive firms entering export activities (F23) | diluted overall productivity growth (O49) |
| trade expansion (F10) | uneven benefits across sectors (J79) |