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Empirical Productivity Distributions and International Trade

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  • Erhardt, Katharina
  • Egger, Peter
  • Nigai, Sergey

Abstract

We use firm-level data for 15 countries and 13 manufacturing sectors to estimate firm-level productivity parameters and to establish representative country-sector-specific empirical productivity distributions. We use these distributions against the backdrop of multi-sector versions of the models of Eaton and Kortum (2002) and Melitz (2003) to quantify the role of technology in shaping international trade flows. We find that, on average, absolute advantage measured as productivity differences across countries within sectors explains 15% and 21% of the total variation in bilateral trade shares in the models of Eaton and Kortum (2002) and Melitz (2003), respectively. In contrast, on average, comparative advantage measured as productivity differences across sectors within countries explains 39% and 47% of the variation in trade flows in these two models. We also demonstrate that empirical productivity distributions entail quantitatively important micro-to-macro implications for marginal responses of trade flows to changes in trade costs, for gravity-type estimation of trade models, and for comparative statics isomorphism between the customarily parameterized models of international trade. We confirm the predictions of the two aforementioned models under empirical productivity distributions in the data.

Suggested Citation

  • Erhardt, Katharina & Egger, Peter & Nigai, Sergey, 2021. "Empirical Productivity Distributions and International Trade," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242392, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc21:242392
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    References listed on IDEAS

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    Cited by:

    1. Egger, Peter & Larch, Mario & Nigai, Sergey & Yotov, Yoto, 2021. "Trade costs in the global economy: Measurement, aggregation and decomposition," WTO Staff Working Papers ERSD-2021-2, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Defever, Fabrice & Riaño, Alejandro, 2022. "Firm-destination heterogeneity and the distribution of export intensity," LSE Research Online Documents on Economics 116625, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Empirical trade analysis; Productivity distributions; Technology; Quantitative tradeanalysis;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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