by Luigi Pascali (Pompeu Fabra University)
History teaches us that globalisation does not automatically translate into economic development.
How does globalisation affect development? This question has a long tradition in economics and has been much debated both in the academia and in policy circles. Neoclassical theories tell us that reducing trade barriers across countries should provide net benefits to individual economies by making markets more efficient and stimulating competition. Testing these theories, however, turns out to be difficult: rich countries are generally also those that trade the most, but is it trade that makes them rich, or do they trade more because they are rich to start with?
The ideal way to answer to these questions would be through an experiment, in which we randomly divide all the countries of the world into two groups and then we reduce trade costs for one group, while keeping trade costs constant for the…
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