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Does trade improve the income levels of the poor and less developed nations? Focusing on the least developed countries (LDCs) designated by the United Nations, we construct a new measure of trade cost, based on the Baltic Dry Index (BDI), as an instrument for trade. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the LDCs. We find that a one percent expansion in trade raises GDP per capita by approximately 0.5 percent on average. This estimate is much larger than previously found in the literature and its quantitative significance emphasizes the importance of trade towards the economic development of low income countries.

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We find that high-speed railway connection in China has led to a reduction in GDP per capita for connected peripheral prefectures. We use the least-cost path-spanning tree network to address the nonrandom route placement issue.We find that the reduction of GDP per capita is driven by significant contractions in capital input, industrial output, and skilled labor outflow. We present evidence to support a trade-based channel in light of falling transportation costs between peripheral and metropolitan regions. Our finding highlights the importance of the cost of human transport. K E Y W O R D S core-periphery, GDP per capita reduction, high-speed railway, least-cost path J E L C O D E S F12, F15, O18, R12