Estimating the effect of trade on capital flows is difficult given the inherent identification problem. We use fluctuations in rainfall to capture the exogenous variation in trade between Germany, France, the U.K., and the Ottoman Empire during 1859-1913. The provisionistic policy of the Ottoman Empire—only surplus production was exported—constitutes the basis of our identification strategy.
Does Trade Cause Capital to Flow? Evidence from Historical RainfallsSebnem Kalemli–Ozcan and Alex Nikolsko–Rzhevskyy ,
NBER working paper 16034