Trade in intermediate goods and total factor productivity

Pedro Ferreira and Alberto Trejos

No 08_18, Working Papers from Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto

Abstract: We develop and calibrate a model where differences in factor endowments lead countries to trade intermediate goods, and gains from trade reflect in total factor productivity. We perform several output and growth decompositions, to assess the impact that barriers to trade, as well as changes in terms of trade, have on measured TFP. We find that for very poor economies gains from trade are large, in some cases representing a doubling of GDP. Also, that an improvement in the terms of trade - by allowing the use of a better mix of intermediate inputs in the production process - translates into productivity growth.

Keywords: productivity differences; gains from openness; terms of trade; development decomposition; Heckscher-Ohlin (search for similar items in EconPapers)
JEL-codes: F11 F43 O11 (search for similar items in EconPapers)
Date: 2008-05-09
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