Abstract
Insights from economics of geography suggest that greater urbanisation should lead to an increased level of trade. Larger exporting markets should also provide incentives for agglomeration. Using a novel instrumental variables approach, this paper provides empirical evidence that suggests that within country urbanisation has a strong positive impact on exports of the modern sector, whilst the exports too have a positive impact on urbanisation. Consistent with model predictions, urbanisation is also associated with a decline in exports and increase in imports in the primary sector.
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