A tale of two tails: Productivity distribution and the gains from trade

Sergey Nigai

Journal of International Economics, 2017, vol. 104, issue C, 44-62

Abstract: I use firm-level data to show that neither the Log-normal nor the Pareto distribution can approximate the shape of the productivity distribution along the entire support. While the former underpredicts the thickness of the right tail, the latter does not capture the shape of the left one. Using empirical distribution as a benchmark, I show that such inaccuracies lead to sizable errors in the estimates of the gains from trade in models featuring firm selection. I propose using a mixed distribution which models the left tail as Log-normal and right tail as Pareto and produces negligible errors in quantitative analysis.

Keywords: Productivity distribution; Welfare gains; International trade; Pareto tail (search for similar items in EconPapers)
JEL-codes: F1 F10 F12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Working Paper: A Tale of Two Tails: Productivity Distribution and the Gains from Trade (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:104:y:2017:i:c:p:44-62

DOI: 10.1016/j.jinteco.2016.10.006

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