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Trade in intermediate goods and total factor productivity

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  • Pedro Cavalcanti Ferreira
  • Alberto Trejos
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    Abstract

    We develop and calibrate a model where differences in factor endowments lead countries to trade intermediate goods, and gains from trade reflect in total factor productivity. We perform several output and growth decompositions, to assess the impact that barriers to trade, as well as changes in terms of trade, have on measured TFP. We find that for very poor economies gains from trade are large, in some cases representing a doubling of GDP. Also, that an improvement in the terms of trade - by allowing the use of a better mix of intermediate inputs in the production process - translates into productivity growth.

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    Bibliographic Info

    Paper provided by Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto in its series Working Papers with number 08_18.

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    Date of creation: 09 May 2008
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    Handle: RePEc:fea:wpaper:08_18

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    Related research

    Keywords: productivity differences; gains from openness; terms of trade; development decomposition; Heckscher-Ohlin;

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    References

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    1. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Sudden stops, sectoral reallocations, and the real exchange rate," Staff Report, Federal Reserve Bank of Minneapolis 414, Federal Reserve Bank of Minneapolis.
    2. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
    3. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(6), pages 1726-1768, September.
    4. Deardorff, A.V., 1997. "Rich and Poor Countries in Neoclassical Trade and Growth," Working Papers, Research Seminar in International Economics, University of Michigan 402, Research Seminar in International Economics, University of Michigan.
    5. Patrick J. Kehoe & Timothy J. Kehoe, 1994. "Capturing NAFTA's impact with applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 17-34.
    6. Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices 07-40, Review of Economic Dynamics.
    7. Andres Rodriguez-Clare, 2007. "Trade, Diffusion and the Gains from Openness," NBER Working Papers 13662, National Bureau of Economic Research, Inc.
    8. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
    9. Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers, Federal Reserve Bank of Dallas 0105, Federal Reserve Bank of Dallas.
    10. Felipe Meza & Erwan Quintin, 2005. "Financial Crises and Total Factor Productivity: The Mexican Case," 2005 Meeting Papers, Society for Economic Dynamics 478, Society for Economic Dynamics.
    11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics, Boston College Department of Economics 593, Boston College Department of Economics.
    12. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are shocks to the terms of trade shocks to productivity?," Staff Report, Federal Reserve Bank of Minneapolis 391, Federal Reserve Bank of Minneapolis.
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