By using air transport freight capacity instead of physical flight distance to generate the instrument, this study separates the effect attributable exclusively to trade not other growth predictors.<sup>25</sup> The estimation process for the IV1 strategy follows the Feyrer (2018) approach, and it is executed in two steps. The first step involves the use of a gravity model to predict trade based on geography, incorporating geographic distance and replacing air distance with air transport freight capacity (we included one period lag of air transport freight capacity to avoid reverse causation). The suitable equation for predicting trade for each pair over time becomes: Where Tradeijt is bilateral trade between country i and country j at time t, distij is the bilateral distance between i and j, airfreightt−1 is air transport freight capacity in period t-1, Xij is a set of controls for pair countries’ time invariant characteristics such as colonial relationships and shared borders, γi, γj, and γt represent country and time fixed effects. Building on Feyrer’s (2018) approach, we controlled for fixed effects.<sup>26</sup> The second step aggregates predicted trade obtained from equation (2), as defined in equation (3) below. The aggregated predicted trade is used as an exogenous instrument to assess the impact of trade on growth.

# _The IV2 Strategy – Top 5 Trade Partners, Mean Distance to World’s largest traders._

The IV2 strategy uses three instruments: the mean GDP of top five trade partners (in exports and imports, separately), the mean distance to the world largest traders, and the lag of air transport freight capacity. Historically, studies have explored different definitions of a country’s GDP as the dependent variable e.g., country GDP (Lee 1993; Rodrik, Subramanian, and Trebbi 2004), growth rates (Kohli and Singh 1989; Levine and Renelt 1992), or various measures of GDP-inducing productivity gains (Bodman 1996; Kunst and Marin 1989; Marin 1992; Nishimizu and Robinson 1984). Trade economics dating back to Ricardo (1817) imply that, in the case of increasing supply and/or demand, given certain circumstances, a country would export and/or import more with its trading partners. This study’s IV Strategy intuits that the increasing GDP of a country’s trading partner can influence that country’s GDP through trade. Our study tests this hypothesis by moving GDP to the right side of the equation, that is, a country’s trading partners’ GDP becomes an exogenous instrument to our “dependent variable country’s” GDP. The main assumption is that the growth of trade partners is external to domestic growth. However, as an instrument “trading partner GDP” may not fully satisfy the exclusion restriction given the potential for investment capital flows

> 25 Air freight is the volume of freight, express, and diplomatic bags carried on each flight stage (operation of an aircraft from takeoff to its next landing), measured in metric tons times kilometers traveled. Data are obtained from the World Bank World Development Indicators. 26 Fixed effects are essential to isolate growth determinants related to relatively constant country characteristics, such as climate or institutional quality.  Such effects may affect growth but are unresponsive to changes in trade.  They minimize omitted variable bias by eliminating the relevance of the non-trade channels whose effects on GDP are successfully restricted to time varying bilateral relationships.

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