Trade Openness and Cross-country Income Differences

Christian Hepenstrick and Alexander Tarasov

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Development accounting literature usually attributes the observed cross-country variation in per capita income to differences in countries' factor endowments and total factor productivity (the Solow residual). While the former can be relatively straightforward interpreted and measured, the latter remains at least partly a black box. In this paper, we provide a structural interpretation for differences in total factor productivity across countries and quantitatively explore the role of trade barriers in explaining cross-country income differences. In particular, we find that giving all countries the same market entry costs or giving all country-pairs the same variable trade costs reduces inequality by around 13%.

Keywords: General equilibrium; market access costs; development accounting; experiments (search for similar items in EconPapers)
JEL-codes: F11 F12 O10 O40 (search for similar items in EconPapers)
Date: 2013-05-29
New Economics Papers: this item is included in nep-int
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Journal Article: Trade Openness and Cross-country Income Differences (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:402

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