Growth takeoffs and trade margins: a quantile regression approach

Recent studies find evidence that economic growth takeoffs are strongly positively correlated with large increases in total aggregate exports. These studies often analyze the average relationship between these economic growth takeoffs and total trade flows. Therefore, these studies are somewhat limited because the average relationship masks the potential heterogeneous impact of takeoffs on different levels of the trade distribution. Moreover, endogeneity issues due to a possible bidirectional relationship between trade openness and economic growth also need to be considered. In this paper, we use two quantile regression models—both models allow for panel data and fixed effects, while one also makes use of instrumental variables to address endogeneity concerns. As such, we investigate whether takeoffs affect countries equally when they trade at the lower end of the distribution (countries that trade less with each other) compared to those at the higher end of the distribution (countries that trade more with each other). Our results suggest that economic growth takeoffs affect countries at the lower end of the export distribution (10th percentile) significantly more compared to higher end of the export distribution (90th percentile). Moreover, these results are driven entirely by the extensive margin. We also find evidence that takeoffs affect countries with a lower level of income much more compared to those with a high level of income, with this result also extending to the extensive margin.