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Trade in intermediate goods and total factor productivity

  • Pedro Cavalcanti Ferreira
  • Alberto Trejos
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    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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    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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    1. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    2. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
    3. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    4. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
    5. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
    6. Ferreira Pedro C. & Pessoa Samuel A & Veloso Fernando A, 2008. "The Evolution of International Output Differences (1970-2000): From Factors to Productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-34, February.
    7. Deardorff, A.V., 1997. "Rich and Poor Countries in Neoclassical Trade and Growth," Working Papers 402, Research Seminar in International Economics, University of Michigan.
    8. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Sudden stops, sectoral reallocations, and the real exchange rate," Staff Report 414, Federal Reserve Bank of Minneapolis.
    9. Andres Rodriguez-Clare, 2007. "Trade, Diffusion and the Gains from Openness," 2007 Meeting Papers 126, Society for Economic Dynamics.
    10. Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers 0105, Federal Reserve Bank of Dallas.
    11. Patrick J. Kehoe & Timothy J. Kehoe, 1994. "Capturing NAFTA's impact with applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 17-34.
    12. Felipe Meza & Erwan Quintin, 2005. "Financial Crises and Total Factor Productivity: The Mexican Case," 2005 Meeting Papers 478, Society for Economic Dynamics.
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