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Gains from Trade and Measured Total Factor Productivity

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  • Pedro Cavalcanti Ferreira

    (Fundacao Getulio Vargas)

  • Alberto Trejos

    (INCAE)

Abstract

We develop and calibrate a model where differences in factor endowments lead countries to trade different goods, so that the existence of international trade changes the sectorial composition of output from one country to another. Gains from trade reflect in total factor productivity. We perform a development decomposition, to assess the impact of trade -and of the elimination of barriers to trade- on measured TFP. In our sample, the median size of the effect of going from no trade to free trade is about 6.5% of output, with a mean of 17% and a maximum of 89%. Also, the model predicts that changes in the terms of trade cause a change of productivity, and that effect has an average elasticity of 0.73. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2011.01.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 3 (July)
Pages: 496-510

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Handle: RePEc:red:issued:08-110

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Keywords: Productivity differences; Gains from openness; Terms of trade; Development decomposition; Heckscher-Ohlin;

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Cited by:
  1. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.

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