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Can Ethnic Diversity Explain the Varying Effects of Regional Trade Agreements?

Sundmark, Alexandra LU (2020) NEKP01 20201
Department of Economics
Abstract
In response to the recent stagnation of global economic integration, a large part of world trade today transpires within the boundaries of regional trade agreements (RTAs). However, trade effects are heterogeneous both across and within RTAs - a phenomenon not fully understood. Since the end of the Cold War, researchers have studied the role of ethnic diversity in explaining low economic development, especially in Sub-Saharan Africa. Despite many possible theoretical mechanisms, as well as a strong connection between international trade and development policy, the link between diversity and trade has not been previously analysed empirically. In this paper, I evaluate the relationship between preferential trading opportunities, ethnic... (More)
In response to the recent stagnation of global economic integration, a large part of world trade today transpires within the boundaries of regional trade agreements (RTAs). However, trade effects are heterogeneous both across and within RTAs - a phenomenon not fully understood. Since the end of the Cold War, researchers have studied the role of ethnic diversity in explaining low economic development, especially in Sub-Saharan Africa. Despite many possible theoretical mechanisms, as well as a strong connection between international trade and development policy, the link between diversity and trade has not been previously analysed empirically. In this paper, I evaluate the relationship between preferential trading opportunities, ethnic diversity, and trade flows for a large sample of bilaterally trading economies over the period 1988 to 2008 using the fixed effects Poisson-Pseudo-Maximum-Likelihood (PPML) estimator, looking at both static and cumulative effects. I find that the correlation between RTAs and trade flows seems to vary non-monotonically with the level of ethnic diversity. Hence, it is not predominantly a large number of different ethnic groups that presents an obstacle to export performance, but the tension created when a society approaches a situation with two equally sized, competing, ethnic groups. More- over, the export of manufactured goods is particularly restricted in such, ethnically polarised, economies. A number of sensitivity analyses suggests that the results are fairly robust to sample and specification changes. (Less)
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author
Sundmark, Alexandra LU
supervisor
organization
course
NEKP01 20201
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Preferential Trade, Ethnic Fractionalization, Ethnic Polarisation, Heterogeneous Effects, PPML
language
English
id
9029664
date added to LUP
2021-03-11 12:23:54
date last changed
2021-03-11 12:23:54
@misc{9029664,
  abstract     = {In response to the recent stagnation of global economic integration, a large part of world trade today transpires within the boundaries of regional trade agreements (RTAs). However, trade effects are heterogeneous both across and within RTAs - a phenomenon not fully understood. Since the end of the Cold War, researchers have studied the role of ethnic diversity in explaining low economic development, especially in Sub-Saharan Africa. Despite many possible theoretical mechanisms, as well as a strong connection between international trade and development policy, the link between diversity and trade has not been previously analysed empirically. In this paper, I evaluate the relationship between preferential trading opportunities, ethnic diversity, and trade flows for a large sample of bilaterally trading economies over the period 1988 to 2008 using the fixed effects Poisson-Pseudo-Maximum-Likelihood (PPML) estimator, looking at both static and cumulative effects. I find that the correlation between RTAs and trade flows seems to vary non-monotonically with the level of ethnic diversity. Hence, it is not predominantly a large number of different ethnic groups that presents an obstacle to export performance, but the tension created when a society approaches a situation with two equally sized, competing, ethnic groups. More- over, the export of manufactured goods is particularly restricted in such, ethnically polarised, economies. A number of sensitivity analyses suggests that the results are fairly robust to sample and specification changes.},
  author       = {Sundmark, Alexandra},
  keyword      = {Preferential Trade,Ethnic Fractionalization,Ethnic Polarisation,Heterogeneous Effects,PPML},
  language     = {eng},
  note         = {Student Paper},
  title        = {Can Ethnic Diversity Explain the Varying Effects of Regional Trade Agreements?},
  year         = {2020},
}