From the Local Economy to the Global Market. Municipal-Level Spatial Economic Modelling of International Trade for Brazil

Abstract

International trade is one of the key spheres of economic policy. It is crucial for a country to understand the dynamics of its export markets to create a coherent strategy to improve its position in global markets. Research in this field is particularly interesting for both economists and policy makers. However, due to a lack of data, most of the well-established literature is focused on the national level. Therefore, there is little evidence on the influence of local characteristics on export markets. This research aims to evaluate the influence of regional factors on the competitiveness of firms in international markets, focussing on the importance of agglomeration economies and location, among other local factors. To identify this influence, this paper studies the case of Brazil. This country offers rich disaggregated information that allows this type of research and displays enormous differences across rural and urban areas. Given these differences, the assumption of homogeneous effects is too restrictive. Therefore, to study the patterns across different territories around the country, Geographically Weighted Generalized Linear Model (GWGLM) method is applied. The results indicate an interaction between location and the influence of several local characteristics such as human capital, the degree of development and the local economic structure. This relationship creates virtuous circles in a few locations where urban agglomerations create a suitable environment for firms, while opposite patterns appear in other locations.

JEL codes: F14, R11 and R12