Research notes · Trade

Does trading more make a country richer, or do rich countries simply trade more?

What the authors found

Feyrer revisits one of the hardest questions in the field. Frankel and Romer used geography as an instrument for trade and found a positive effect on income; Rodríguez and Rodrik showed the result was fragile to controlling for latitude and institutions, because geography does not change. Feyrer's answer is to make geography time-varying: as aircraft improved, country pairs with short air routes relative to sea routes gained more from the shift to air freight. That variation identifies the effect without the omitted-variable problem.

What our data adds

Our data holds both sides of the correlation Feyrer was trying to make causal — trade as a share of GDP and GDP itself, for essentially every economy since 1970 — and that is precisely why it cannot settle it. The raw association is easy to compute and worthless: economies with high trade shares are on average richer, and the whole methodological history of this question is about why that fact establishes nothing. Feyrer's contribution is an instrument, not a correlation, and an instrument is something a data platform can host but not supply.

What this cannot show

There is no note here where the gap between having the variables and answering the question is wider. Publishing a scatter of trade openness against income would look like evidence and would be the exact error Rodríguez and Rodrik spent a paper warning about. Our contribution to this question is to hold the inputs and to say clearly that they are not the answer.

The data behind it

Related notes

• When a country exports, how much of the value was actually made there — and how far does the usual export statistic mislead us?
• Who actually paid for the 2018 US tariffs, and what did they do to the pattern of trade?
• When two countries trade with each other and neither is the United States, whose currency is the price in?

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