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Ricardian selection

  • Andrea Finicelli

    ()

    (Bank of Italy)

  • Patrizio Pagano

    ()

    (Bank of Italy)

  • Massimo Sbracia

    ()

    (Bank of Italy)

We analyze the foundations of the relationship between trade and total factor productivity (TFP) in the Ricardian model. Under general assumptions about the autarky distributions of industry productivities, trade openness raises TFP. This is due to the selection effect of international competition � driven by comparative advantages � which makes "some" high- and "many" low-productivity industries exit the market. We derive a model-based measure of this effect that requires only production and trade data. In a sample of 41 countries, we find that Ricardian selection raised manufacturing TFP by 11% above the autarky level in 2005 (as against 6% in 1985), with a neat positive time trend and large cross-country differences.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 728.

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Date of creation: Oct 2009
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Handle: RePEc:bdi:wptemi:td_728_09
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