Trade and Growth: An Empirical Investigation
Working Paper 5476
Countries' geographic characteristics have important effects on their trade, and are plausibly uncorrelated with other determinants of their incomes. This paper therefore constructs measures of the geographic component of countries' trade and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results suggest that ordinary least squares estimates understate the effects of trade, and that trade has a quantitatively large, significant, and robust positive effect on income.
American Economic Review, Vol. 89, no. 3 (June 1999): 379-399.(Published under title "Does Trade Cause Growth?")