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The Impact of Border Walls on International Trade Flow

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The Impact of Border Walls on International Trade Flow THE IMPACT OF BORDER WALLS ON INTERNATIONAL TRADE FLOW A Research Paper presented by: Vetonatus Kossam Kamwela (Tanzania) MASTER OF ARTS IN DEVELOPMENT STUDIES Major: Economics of Development (ECD) Members of the Examining Committee: PROF. PETER A.G VAN BERGEIJK DR. Howard NICHOLAS The Hague, The Netherlands December, 2019 ii Contents List of figures ............................................................................................................................................... v List of appendices ....................................................................................................................................... v List of acronyms .......................................................................................................................................... v Acknowledgements ................................................................................................................................... vii Abstract ...................................................................................................................................................... viii CHAPTER 1: INTRODUCTION................................................................................. 1 1.1 Statement of the Research Problem ............................................................................................ 1 1.2 Justification and relevance of this research ................................................................................ 3 1.4 Research objective ......................................................................................................................... 4 1.5 Research Question ......................................................................................................................... 5 1.6 Limitation of the study .................................................................................................................. 5 1.7 Organization of the study ............................................................................................................. 5 CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW .... 6 2.1 Theoretical Framework ................................................................................................................. 6 2.1.1 Trade Theory ............................................................................................................................... 6 2.1.2 Border Walls as Trade Barrier ................................................................................................... 6 2.1.3 New Trade Barriers .................................................................................................................... 8 2.1.4 Theoretical Development of Gravity Model .......................................................................... 9 2.2 Empirical Study Review .............................................................................................................. 10 CHAPTER 3: OVERVIEW OF BORDER WALLS ................................................... 15 3.1 Historical Background of Border Walls ................................................................................... 15 3.1.1 Ancient and Medieval Walls .................................................................................................... 15 3.1.2 Modern Walls ............................................................................................................................ 15 3.2 Brief on Border Walls after 1989 ............................................................................................... 16 3.3 Geography of Walls ..................................................................................................................... 17 3.4 Conclusion .................................................................................................................................... 18 CHAPTER 4: DATA AND METHODOLOGY ......................................................... 19 4.1 Data source ................................................................................................................................... 19 4.2 The gravity model ........................................................................................................................ 21 4.3 Model specification ...................................................................................................................... 22 4.4 Definition of variables ................................................................................................................. 23 4.5 The Issue of Zero Trade Flows ................................................................................................. 26 CHAPTER 5: RESULTS AND ANALYSIS ................................................................ 27 5.1 Descriptive Statistics.................................................................................................................... 27 5.2 Correlation test ............................................................................................................................. 27 5.3 Regression Results and Discusions ........................................................................................... 29 5.3.1 Hausman test ............................................................................................................................. 29 5.3.2 The Impact of GDP, Population, Distance, Common Language, Common Border and Colonial Link....................................................................................................................................... 31 5.3.3 The impact of Political Hostility and Joint Democracy ...................................................... 33 5.3.4 The Impact of Physical Wall on Trade .................................................................................. 33 iii 5.4 Other Consequences of Walls .................................................................................................. 34 5.5 Effectiveness of Walls ................................................................................................................. 34 CHAPTER 6: CONCLUSION AND POLICY IMPLICATION ............................... 36 REFERENCES ................................................................................................................................... 38 iv List of tables Table 2.1: Summary of literature review ............................................................................................................ 13 Table 4.1: List of countries contained in the sample ..................................................................................... 20 Table 4.2: Summary of independent variables ................................................................................................. 25 Table 5 1 : Summary statistics .............................................................................................................................. 27 Table 5.2: Correlation results ................................................................................................................................ 28 Table 5.3: Hausman test summary ...................................................................................................................... 29 Table 5.4: Panel regression results....................................................................................................................... 31 List of figures Figure 1.1: Graph of number of walls and fences 1990-2018 ................................................................................ 1 Figure 3 1: Border walls and fences. A World map ............................................................................................... 17 List of appendices Appendix 1: List of walls up to 2019 ....................................................................................................................... 45 Appendix 2: Walls included in the dataset for analysis ......................................................................................... 48 Appendix 3: Cross section regression results.......................................................................................................... 50 List of acronyms AD Anno Domini v BC Before Christ CEPII Centre d'Etudes Prospectives et d'Informations Internationales CMEA Council for Mutual Economic Assistance EU European Union FEM Fixed Effect Model GDP Gross Domestic Product GNP Gross National Product G20 Group of Twenty IMF International Monetary Fund NAFTA North America Free Trade Area NTBs Non Tarrif Barriers OECD Organization For Economic Cooperation and Development OLS Ordinary Least Squares PML Poison Maximum Likelihood US United States USD United States Dolar WTO World Trade Organizatiom WW II Second World War vi Acknowledgements My first gratitude goes to almighty God the creator of universe for his grace and countless blessings in my life and for giving me strength and ability to conduct this study successfully. It is of great pleasure to thank my supervisors Prof. Peter A.G Van Bergeijk and DR. Howard Nicholas for their continuous support, guidance and excellent supervision. Their critical and insightiful comments steered my study in the right direction and made possible to accomplish it successfully. I would like also to thank all ISS lectures and staff with their tireless support and guidance. I am also grateful to my ECD classmates and colleagues at ISS that have made may stay in the Netherlands unforgettable due to its multicultural
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