Feyrer (2019) WILL COME BACK AT THE END

Question 1

What was Feyrer (2019) about?

What are the findings of the paper?

Answer 1

Feyrer (2019) estimates an elasticity of income per capita to trade of roughly 0.5. Give two reasons why this estimate may overstate the gains from trade. (3 marks)

(i) Air transportation technology shock used to motivate the instrument may also have affected costs of FDI, migration and technology transfer. Thus, it is likely that the elasticity captures broader effects of international integration due to FDI, technology transfer and migration in addition to trade. (ii) IV estimates local average treatment effect (LATE), which may be larger than the average effect of trade on income if countries that take more advantage of air travel

Question 2

In Feyrer (2019), what was the identifying strategy that overcame OLS problems?
What were the identifying assumptions?

Question 3

What was the OLS strategy for Feyrer (2019)?

What are the limitations of OLS?

Question 4

What are the limitations of Feyrer (2019)?

Question 5

What was the instrument of Feyrer (2019)?

Are the identifying assumptions satisfied?

Answer 5

Instrument: Changes for transportation technology over time

In particular, he exploits the introduction of air freight by estimating a gravity equation with time varying effects of air and sea distance

Feyrer uses a time varying instrument he is able to control for country fixed effects in his estimates thus reducing likelihood of omitted variable bias.

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Question 6

Feyrer (2019) estimates an elasticity of income per capita to trade of roughly 0.5. Give two reasons why this estimate may overstate the gains from trade. (3 marks)

Answer 6

(i) Air transportation technology shock used to motivate the instrument may also have affected costs of FDI, migration and technology transfer. Thus, it is likely that the elasticity captures broader effects of international integration due to FDI, technology transfer and migration in addition to trade. (ii) IV estimates local average treatment effect (LATE), which may be larger than the average effect of trade on income if countries that take more advantage of air travel