Trade policy and productivity |
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Authors: | Harald Badinger |
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Institution: | Department of Economics, Europainstitut, Vienna University of Economics and Business Administration, Althanstrasse 39-45, A-1090 Vienna, Austria |
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Abstract: | Previous studies on the determinants of productivity emphasized the role of trade and institutions but omitted trade policy due to endogeneity concerns. This paper considers the role of one important element of trade policy: free trade agreements (FTAs). Based on recent work on the determinants of FTAs, we suggest an instrument which is based on the propensity to enter an FTA due to (exogenous) geographical characteristics. We find that differences in institutional quality and trade, due to variations in geography and trade policy, have a sizeable effect on productivity and can explain the huge variation in per capita income across countries. |
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Keywords: | F15 F43 O40 |
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