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Title: Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom?
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Abstract: We study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country’s pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs because: (i) the average complexity of a country’s industry mix raises its capability growth, and (ii) foreign competition is tougher in less complex sectors for all countries. Empirically, we provide causal evidence consistent with (i) using the entry of countries into the World Trade Organization as an instrumental variable for other countries’ patterns of specialization. The opposite of (ii), however, appears to hold in the data. Through the lens of our model, these two empirical observations imply dynamic welfare losses from trade that are small for the median country, but pervasive and large among a number of African countries.
Bio: Arnaud Costinot is Professor of Economics at MIT. He received his B.S. from Ecole Polytechnique in 2000, his M.A. from Ecole des Hautes Etudes en Sciences Sociales in 2001, and his Ph.D. from Princeton University in 2005. Professor Costinot has received numerous awards including the Prix Edmond Malinvaud, the Kiel Excellence Award in Global Economic Affairs, and an Alfred P. Sloan Research fellowship. He is a Fellow of the Econometric Society, a Faculty Research Associate for the National Bureau of Economic Research and a Research Fellow for the Center for Economic Policy Research. He also serves on the editorial boards of the American Economic Review and the Journal of International Economics. Specializing in international trade, he has published the American Economic Review, Econometrica, the Journal of Political Economy, the Quarterly Journal of Economics, and the Review of Economic Studies. His current research focuses on trade policy and the measurement of the welfare gains from trade.