Let There Be Light: Trade and the Development of Border Regions

Abstract

Does international trade help or hinder the economic development of border regions relative to interior regions? Theory tends to suggest that trade helps, but it can also predict the reverse. The question is policy relevant as regions near land borders are generally poorer, and sometimes more prone to civil conflict, than interior regions. We therefore estimate how changes in bilateral trade volumes affect economic activity along roads running inland from international borders, using satellite night-light measurements for 2,186 border-crossing roads in 138 countries. We observe a significant 'border shadow': on average, lights are 37 percent dimmer at the border than 200 kilometers inland. We find this difference to be reduced by trade expansion as measured by exports and instrumented with tariffs on the opposite side of the border. At the mean, a doubling of exports to a particular neighbor country reduces the gradient of light from the border by some 23 percent. This qualitative finding applies to developed and developing countries, and to rural and urban border regions. Proximity to cities on either side of the border amplifies the effects of trade. We provide evidence that local export-oriented production is a significant mechanism behind the observed effects.

Keywords: border regions, Economic Geography, night lights data, trade liberalization

JEL Classification: F14, F15, R11, R12