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Gravity, Productivity and the Pattern of Production and Trade

  • James E. Anderson

    ()

    (Boston College)

The aggregated incidence of bilateral trade costs is derived from the gravity model. Incidence is equivalent to a TFP penalty. Sectoral and national differences in TFP have sharp implications for the equilibrium pattern of production and trade in a specific factors model of production. Unskilled labor is intersectorally mobile. Skilled labor acquires sector specific skills. Productivity shocks cause incidence shock that induce ex post inefficient allocation of skilled labor. Below (above) average TFP sectors produce less and have below (above) average skill premia. Ex ante efficient allocation is lower in sectors with riskier TFP incidence, despite risk neutrality.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 700.

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Date of creation: 01 Dec 2008
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Handle: RePEc:boc:bocoec:700
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  1. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  2. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," International Trade 0103003, EconWPA.
  3. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  4. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," Boston College Working Papers in Economics 698, Boston College Department of Economics.
  5. James E. Anderson, 2009. "Globalization and Income Distribution: A Specific Factors Continuum Approach," NBER Working Papers 14643, National Bureau of Economic Research, Inc.
  6. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  7. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  8. Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
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