Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/127061 
Year of Publication: 
2015
Series/Report no.: 
ISER Discussion Paper No. 944
Publisher: 
Osaka University, Institute of Social and Economic Research (ISER), Osaka
Abstract: 
Development accounting shows that a significant part of cross-country income differences is attributed to differences in total factor productivity (TFP), but the sources of TFP differences are not well understood. This paper considers the role of international trade to explain cross-country income differences in TFP. By using a multi-country Ricardian trade model, I distinguish trade costs and trade policy factors from a pure technology factor in TFP. Under the baseline parameterization, my model shows that conventional TFP measures overestimate fundamental productivity differences by 30%. I then show that trade costs significantly influence welfare: small European countries enjoy 10 - 15% higher welfare through their proximity to larger and more productive neigh- boring countries, while Oceanian and countries in southern Africa suffer from 10 - 20% lower welfare due to their remoteness. Trade policy also has impacts: tariffs decrease welfare by 1 - 10%, while free-trade agreements increase welfare by 1 - 5%. These gains from trade are considerably smaller if general equilibrium effects are not considered.
Subjects: 
Development accounting
Total factor productivity
Cross-country income differences
Ricardian trade model
Gains from trade
General equilibrium effects
JEL: 
E22
E23
F11
O40
O47
Document Type: 
Working Paper

Files in This Item:
File
Size
191.76 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.