Increasing Returns and Economics Prosperity: How Can Size not Matter?
Models that feature ideas naturally lead to scale effects, and this results in the counterfactual implication that larger countries should be richer than smaller ones. Perhaps small countries are not poor because they beneÃƒÂ¯Ã‚Â¬Ã‚t from foreign ideas through trade. Quantitative trade models do imply that small countries gain more from trade than large countries, but the difference is too small to make a difference. There are two candidates to solve the puzzle: ÃƒÂ¯Ã‚Â¬Ã‚rst, there are additional ways besides trade through which countries are integrated to the rest of the world, and second, countries are not fully integrated domestically. In this paper we explore these two ideas by building a quantitative model of trade and multinational production with frictions to the domestic movement of goods and ideas. The resulting model comes close to solving the puzzle, but not fully.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Natalia Ramondo & Andrés Rodríguez-Clare, 2010. "Growth, Size, and Openness: A Quantitative Approach," American Economic Review, American Economic Association, vol. 100(2), pages 62-67, May.
- University of Iowa & Michael E. Waugh, 2007.
"International Trade and Income Differences,"
2007 Meeting Papers
492, Society for Economic Dynamics.
- Alcala, Francisco & Ciccone, Antonio, 2001.
"Trade and Productivity,"
CEPR Discussion Papers
3095, C.E.P.R. Discussion Papers.
- Francisco Alcalá & Antonio Ciccone, 2001. "Trade and productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
- Francisco Alcalá & Antonio Ciccone, 2003. "Trade and Productivity," Working Papers 12, Barcelona Graduate School of Economics.
- Lorenzo Caliendo & Fernando Parro, 2012.
"Estimates of the Trade and Welfare Effects of NAFTA,"
NBER Working Papers
18508, National Bureau of Economic Research, Inc.
- Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
- Natalia Ramondo & Andr�s Rodr�guez-Clare, 2013.
"Trade, Multinational Production, and the Gains from Openness,"
Journal of Political Economy,
University of Chicago Press, vol. 121(2), pages 273 - 322.
- Andres Rodriguez-Clare & Natalia Ramondo, 2007. "Trade, Multinational Production, and the Gains from Openness," 2007 Meeting Papers 819, Society for Economic Dynamics.
- Natalia Ramondo & Andrés Rodríguez-Clare, 2009. "Trade, Multinational Production, and the Gains from Openness," NBER Working Papers 15604, National Bureau of Economic Research, Inc.
- Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2010.
"What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas,"
NBER Working Papers
16262, National Bureau of Economic Research, Inc.
- Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 581-608.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:143. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.