Gains from Trade and Measured Total Factor Productivity

Pedro Ferreira and Alberto Trejos
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Alberto Trejos: INCAE

Review of Economic Dynamics, 2011, vol. 14, issue 3, 496-510

Abstract: We develop and calibrate a model where differences in factor endowments lead countries to trade different goods, so that the existence of international trade changes the sectorial composition of output from one country to another. Gains from trade reflect in total factor productivity. We perform a development decomposition, to assess the impact of trade -and of the elimination of barriers to trade- on measured TFP. In our sample, the median size of the effect of going from no trade to free trade is about 6.5% of output, with a mean of 17% and a maximum of 89%. Also, the model predicts that changes in the terms of trade cause a change of productivity, and that effect has an average elasticity of 0.73. (Copyright: Elsevier)

Keywords: Productivity differences; Gains from openness; Terms of trade; Development decomposition; Heckscher-Ohlin (search for similar items in EconPapers)
JEL-codes: F13 F41 F43 O40 O47 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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DOI: 10.1016/j.red.2011.01.001

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