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Distortions and the Structure of the World Economy

Listed author(s):
  • Lorenzo Caliendo
  • Fernando Parro
  • Aleh Tsyvinski

We develop a model of the world economy as input-output relationships subject to distortions. We then propose a methodology to solve the identification problem, common to the literature on misallocation in input-output relationships, of separating sectoral TFPs from the sectoral distortions. Using both the input shares and the consumption shares within the CES production and CES consumption structure we derive simple closed-form sufficient statistics for the sectoral distortions and for the sectoral TFPs. We then derive a closed-form solution of the elasticities of each entry in the world input-output matrix to distortions. We compute a total of more than half a million internal distortions and TFPs and document significant heterogeneity of those across countries and sectors. We then calculate the whole matrix of about two million elasticities to distortions and TFPs of the input-output matrix of the world economy. We show that internal (within a given country) distortions significantly affect the structure of the economy of that country and have sizeable cross effects on the input-output matrix of other countries. We then find that the world GDP elasticity to changes in internal distortions is an order of magnitude larger than that of the external distortions.

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File URL: http://www.nber.org/papers/w23332.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23332.

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Date of creation: Apr 2017
Handle: RePEc:nbr:nberwo:23332
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  1. Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg & Fernando Parro & Lorenzo Caliendo, 2013. "The impact of regional and sectoral productivity changes on the U.S. economy," Working Paper 13-14, Federal Reserve Bank of Richmond.
  2. Vasco M. CARVALHO & NIREI Makoto & SAITO Yukiko, 2014. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," Discussion papers 14035, Research Institute of Economy, Trade and Industry (RIETI).
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  8. Harald Fadinger & Christian Ghiglino & Mariya Teteryatnikova, 2015. "Income Differences and Input-Output Structure," Vienna Economics Papers 1510, University of Vienna, Department of Economics.
  9. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  10. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
  11. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
  12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  13. Saki Bigio & Jennifer La’O, 2016. "Financial Frictions in Production Networks," Working Papers 2016-67, Peruvian Economic Association.
  14. Owen Zidar & Juan Carlos Serrato & Eduardo Morales & Pablo Fajgelbaum, 2015. "State Taxes and Spatial Misallocation," 2015 Meeting Papers 877, Society for Economic Dynamics.
  15. Dominick Bartelme & Yuriy Gorodnichenko, 2015. "Linkages and Economic Development," NBER Working Papers 21251, National Bureau of Economic Research, Inc.
  16. Charles I. Jones, 2011. "Intermediate Goods and Weak Links in the Theory of Economic Development," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 1-28, April.
  17. Kjetil Storesletten & Gueorgui Kambourov & Loren Brandt, 2016. "Firm Entry and Regional Growth Disparities: the Effect of SOEs in China," 2016 Meeting Papers 182, Society for Economic Dynamics.
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