Presentation by Alexandert Himbert, OECD at the OECD Workshop on Spatial Dimensions of Productivity, 28-29 March 2019, Bolzano. More info: https://oe.cd/GFPBolzano2019

1. Trade facilitation and spatial patterns of
economic activity
Alexander Himbert
OECD, STI/PBD
Workshop on Spatial Dimensions of Productivity, 28-29 March,
Bolzano

2. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Motivation
In many countries, border regions are less developed than
interior regions.
- Viewed from space at night, borders are on average 35%
darker than locations 200 road kilometres away from the
border. World map
Theory and existing evidence on the role of trade liberalization
on within-country economic geographies are ambiguous.
Productivity dispersion between regions within countries
(OECD, 2016, OECD Regional Outlook 2016: Productive
Regions for Inclusive Societies)
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3. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Two questions in this presentation
Does cross-border trade help or hinder the economic
development of border regions? (Brülhart, Cadot & Himbert,
2019)
⇒ Using satellite night lights within 10 × 10 kilometer grid cells on
sample of 138 countries to quantify effects of trade at fine spatial
resolution
Which sectors of the economy drive the redistribution of
economic activity through trade? (Himbert, 2019)
Do border regions only grow due to transportation of goods
and border related infrastructure or does production increase?
Does trade also create more employment and increase
productivity in border region?
⇒ Using firm addresses to combine Orbis firm data with
geospatial information.
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4. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Two possible scenarios after trade liberalization
Economic activity
Distance to border
(a) Concentration scenario
Economic activity
Distance to border
(b) Dispersion scenario
The solid lines illustrate the gradient of economic activity along distance to the
closest land border before trade liberalization. The dashed lines illustrate the
gradient after trade liberalization.
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5. Trade and the development of border regions

6. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Measuring economic activity in space on a global scale
Needed: Proxy for economic activity that is spatially disaggregated
and available for any country on earth
Well documented use of
night lights captured by US
satellites as proxy for
economic activity
Correlation light - GDP
Data freely available and
easy to use from 1992
onwards
Spatial resolution: cells of
about 1km2
Available world wide at
same precision
Lights around the Nile river
Egypt
Israel
Jordan
Saudi Arabia
Palestina
Lebanon
Palestina
Syria
0 100 20050 Kilometers
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7. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Lights and roads
Sudan
Ethiopia
Eritrea
South Sudan0 100 20050 Kilometers
Legend
Lights intensity (2010)
Value
High : 63
Low : 0
Highways and major roads
Sudan
Ethiopia
Eritrea
0 50 10025 Kilometers
Legend
Road (5km buffer)
Units of observation
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8. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The central finding in a picture
-1.5-1-.50.5
Averagelightintensity(logs)
0-20 20-40 80-100 160-180
Distance from border (Bins of 20km width)
Trade > Road Median Trade Trade < Road Median Trade
Border
EU graph
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9. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Further results (in the paper)
Increasing exports has a bigger dispersing effect than
increasing imports
Effects hold for both developed and developing countries
Effects hold for both rural and urban areas
Rural areas benefit disproportionately from trade facilitation in
agricultural goods
Free Trade Areas show no dispersing effect in developing
countries, but have a huge impact in developed countries (EU
accession). The opposite is true for improvements in
infrastructure and trade indices (big effect in developing
countries, smaller in developed.)
Effects are symmetric: decreasing trade to neighbor countries
increases agglomeration away from borders ("Trade
backlash")
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10. Trade facilitation and spatial patterns at the firm
level

11. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Approach
Estimate how bilateral trade affects the performance of firms in
border regions,
using firm addresses to connect Orbis firm data on
employment, output and productivity to geospatial data,
focusing specifically on cross-border road corridors, and
using instrumental variables for bilateral trade volumes.
Advantages:
disentangle economic geographies of different sectors
measured changes in trade intensities as rhs variable,
allowing us to compute magnitude of responses
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12. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Putting firms on a map
Example of towns containing firm addresses. Each firm address is
one observation.
Sample countries: AUT, BEL, CHE, CZE, DEU, ESP, FIN, FRA, HUN, ITA, POL, PRT, SWE, SVK, SVN
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13. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Some summary statistics
Turnover and employment by distance to border
Turnover (mln EUR) Number of employees
Mean Std. dev. p-value Mean Std. dev. p-value
0 − 100 km distance to border 1.27 2.06 11.19 38.71
100 − 200 km distance to border 1.41 1.94 12.99 32.78
Difference -0.14 < 0 .001 -1.80 < 0 .001
0 − 200 km distance to border 1.34 1.95 11.93 36.42
> 200 km distance to border 1.52 2.37 14.55 39.60
Difference -0.18 < 0 .001 -2.62 < 0 .001
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14. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The empirical model
Within-road and country-sector-year identification:
ln yb
it = α +β1di +β2 ln Tcc t +β3(di ×ln Tcc t ) +θxi +γr +γcjt +virt
(1)
Within-firm identification:
ln yb
it = α + β1di + β2 ln Tcc t + β3(di × ln Tcc t ) + θxi + γi + virt
(2)
yb
it : outcome variable ∈ employment, output, labour
productivity of firm i in year t
di : distance of firm i to the closest border
Tcc t : value of exports from c to neighboring country c
(alternatively: imports)
γr , γcjt , γi : Road, country-sector-year and firm FE
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15. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The empirical model: IV
ln yb
it = α +β1di +β2 ln Tcc t +β3(di ×ln Tcc t ) +θxi +γr +γcjt +virt
ln yb
it = α + β1di + β2 ln Tcc t + β3(di × ln Tcc t ) + θxi + γi + virt
Potential endogeneity of trade Tcc t w.r.t. firm activity yb
it
Product of customs-clearance time score in Logistics
Performance Index of the two countries c and c as an
instrument for Tcc t .
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16. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The central finding in a picture
Trade generates more employment at the border than in the center.
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17. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Baseline estimates
Dependent variable: Turnover (logs) Employment (logs) Labour productivity (logs)
(1) (2) (3) (4) (5) (6)
IV IV IV IV IV IV
Distance to border (in 10km) 0.000 0.182∗∗∗ 0.000 0.073∗∗∗ 0.000 0.109∗∗∗
(.) (0.015) (.) (0.010) (.) (0.013)
Bilateral exports (in logs) 0.623 0.522∗∗∗ 0.509∗∗∗ 0.476∗∗∗ 0.114∗ 0.046∗∗
(0.401) (0.101) (0.127) (0.088) (0.066) (0.022)
Bilateral exports × Distance to border -0.041∗∗ -0.022∗∗ -0.035∗∗∗ -0.019∗∗∗ -0.006∗∗ -0.003∗∗
(0.011) (0.011) (0.012) (0.004) (0.003) (0.002)
Controls ALL ALL ALL ALL ALL ALL
Firm FE ! ! !
Road FE ! ! !
Country-Year FE ! ! !
Sector-Year FE ! ! !
Kleibergen-Paap F statistic 11 33 11 33 11 33
# Clusters 205 211 205 211 205 211
# Observations 1,219,008 1,878,445 1,219,008 1,878,445 1,219,008 1,878,445
∗ p < 0.10, ∗∗ p < 0.05, ∗∗∗ p < 0.01
Two-way clustered standard errors at road and country-pair-year level in parentheses.
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18. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Further results
Increasing exports increases both productivity and
employment in all sectors in the economy.
In all sectors, the productivity and employment gains are most
pronounced in close geographic neighborhood to the border.
For the construction sector, effects are very strong directly at
the border = trade leads to investment in border infrastructure,
but increases production in all sectors.
However, imports increase firm performance by much less,
and even decrease employment and productivity in the
manufacturing sector.
Again, the effects vary geographically, with firms closest to the
border incurring the heaviest losses.
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19. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
Conclusion
At low levels of trade, firms in border regions are less
productive than firms within the same sector that are located
more centrally in a country.
Facilitating trade between neighboring countries attenuates
this phenomon, with the biggest gains of trade in terms of
productivity and employment reaped by firms closest to the
border.
The results hold qualitatively across sectors, but vary in
magnitude.
Combining Orbis with other geo-referenced data enhances
the analysis by comparing firms only to other firms located
along the same border-crossing road.
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20. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The border shadow
Red (blue) colored countries: average light intensity within 200 km of land borders is lower (higher) than average light
intensity beyond. 76% of countries (83% when weighted by GDP) exhibit border shadows.
Intro

21. Introduction Trade and the development of border regions Trade facilitation and spatial patterns at the firm level Appendix
The effect of joining the EU in a picture
Border shadows in CEEC countries disappeared after EU
accession.
Average graph