Working Paper: NBER ID: w21886
Authors: Wolfgang Keller; Javier Andres Santiago; Carol H. Shiue
Abstract: Uneven development within countries suggests that domestic trade frictions are important. Trade flows within a country, however, are rarely observed. We employ a new dataset on trade between fifteen Chinese treaty ports to examine the importance of domestic frictions around the year 1900. The distribution of welfare effects depends on each port's productivity and factor costs, China's economic geography as it influences trade costs, as well as the degree of regional diversity in production, which increases the potential gains from trade. We utilize this framework to quantify the size and distribution of welfare effects resulting from new technology and lower trade costs. Domestic trade frictions turn out to be substantial, far from the frictionless world that is commonly assumed. Moreover, geographic barriers loom large in shaping the welfare gains from technology improvements and trade cost reductions. We find, however, that an important explanation for why there was a limit to what could be gained through increased domes- tic trade was that the differences in productivity across regions of China in the 19th century were relatively low.
Keywords: Domestic Trade; Welfare Effects; Trade Frictions; Economic Geography
JEL Codes: F11; F15; N15; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shanghai's productivity increase (O49) | Welfare in Shanghai (I38) |
| Shanghai's productivity increase (O49) | Welfare in Ningbo (I38) |
| Shanghai's productivity increase (O49) | Welfare in Chinkiang (I38) |
| Shanghai's productivity increase (O49) | Welfare in Tianjin (I38) |
| Low productivity differences across regions (O49) | Limited welfare gains from trade (D69) |
| Trade frictions (F19) | Distribution of welfare gains from trade (F16) |