And There Was Light: Trade and the Development of Border Regions

Does international trade help or hinder the economic development of border regions? Theory tends to suggest that trade helps, but it can also predict the reverse. We estimate how changes in bilateral trade volumes affect economic activity along roads running inland from international borders, using satellite night-light measurements for 2,061 border crossing roads in 146 countries. We observe a significant ‘border shadow’: on average, lights are 18 percent dimmer within 30 kilometers of the border than further 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. In our baseline estimate, a doubling of exports to a particular neighbor country increases night lights by 18.5 percent at the border but only by 12.9 percent 200 kilometers inland. We provide evidence that local export-oriented production is a significant mechanism behind the observed effects. Through the lens of theory, our empirical results can also shed light on equilibrium properties in a variety of spatial models.