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Trade Openness and Cross-country Income Differences

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  • Hepenstrick, Christian
  • Tarasov, Alexander

Abstract

Development accounting literature usually attributes the observed cross-country variation in per capita income to differences in countries' factor endowments and total factor productivity (the Solow residual). While the former can be relatively straightforward interpreted and measured, the latter remains at least partly a black box. In this paper, we provide a structural interpretation for differences in total factor productivity across countries and quantitatively explore the role of trade barriers in explaining cross-country income differences. In particular, we find that giving all countries the same market entry costs or giving all country-pairs the same variable trade costs reduces inequality by around 13%.

Suggested Citation

  • Hepenstrick, Christian & Tarasov, Alexander, 2013. "Trade Openness and Cross-country Income Differences," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 402, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:402
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    Citations

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    Cited by:

    1. Christian Hepenstrick, 2016. "Switzerland's gains from trade with Europe:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(03), pages 25-42, December.
    2. Sergey G. Kokovin & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2020. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," CESifo Working Paper Series 8082, CESifo.
    3. Bukhari, Mahnoor & Munir, Kashif, 2016. "Impact of Globalization on Income Inequality in Selected Asian Countries," MPRA Paper 74248, University Library of Munich, Germany.
    4. Atta Ullah & Zhao Kui & Saif Ullah & Chen Pinglu & Saba Khan, 2021. "Sustainable Utilization of Financial and Institutional Resources in Reducing Income Inequality and Poverty," Sustainability, MDPI, vol. 13(3), pages 1-25, January.
    5. Alexander Osharin & Valery Verbus, 2016. "Heterogeneous consumers and trade patterns in a monopolistically competitive setting," HSE Working papers WP BRP 131/EC/2016, National Research University Higher School of Economics.

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    More about this item

    Keywords

    General equilibrium; market access costs; development accounting; experiments;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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