The effects of geography and productivity on the global pattern of production are captured here in a specific factors gravity model. Simple enough for sharp results, the model is yet rich enough to contain the high dimensional productivity frictions in production and distribution of a many country world. The starting point is the international incidence of productivity frictions inferred from gravity. Sellers’ and buyers’ incidence both reduce real income. Sellers’ incidence shocks reduce sectoral skill premia. Bigger sellers’ incidence by country (sector) reduces equilibrium shares of world (national) GDP. In contrast to the generalized Ricardian gravity model of Eaton and Kortum (2002), relative factor endowments play a role and import-competing production and wage premia in exporting are featured.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14642.
Length: Date of creation: Jan 2009 Date of revision: Handle: RePEc:nbr:nberwo:14642
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Find related papers by JEL classification: D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity F10 - International Economics - - Trade - - - General
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