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Can vertical specialization explain the growth of world trade?
The growth in the trade share of output is one of the most important features of the world economy since World War II. The growth is generally thought to have been generated by falling tariff barriers worldwide. This thinking, however, does not square with standard static and dynamic international trade models. Because tariff barriers have decreased little since the early 1960s, these models cannot explain the growth of trade without assuming counterfactually large elasticities of substitution between domestic and foreign goods. I show that this growth can be reconciled with the relatively ...
Journal Article
The effects of a booming economy on the U.S. trade deficit
The robust growth of the U.S. economy between 1996 and 1999 spurred U.S. demand for foreign goods and contributed to a surge in the U.S. trade deficit. An analysis of the effects of the expansion on the trade balance suggests that the economic boom can account for roughly a third of the sharp rise in the merchandise trade deficit during this period.
Working Paper
Can multi-stage production explain the home bias in trade?
A large empirical literature finds that there is too little international trade, and too much intra-national trade to be rationalized by observed international trade costs such as tariffs and transport costs. The literature uses frameworks in which goods are assumed to be produced in just one stage. This paper investigates whether the multi-stage nature of production helps explain the home bias in trade. The author shows that multi-stage production magnifies the effects of trade costs. He then calibrates a multi-stage production model to the U.S. and Canada. He solves the model with measures ...
Dallas Fed Mobility and Engagement Index Gives Insight into COVID-19’s Economic Impact
To gain insight into the economic impact of the pandemic, we developed an index of mobility and engagement, based on geolocation data collected from a large sample of mobile devices.
Working Paper
Structural Change in Sub-Saharan Africa: An Open Economy Perspective
We study the evolution of manufacturing value added shares in 11 sub-Saharan African (SSA) countries through the lens of an open economy model of structural change. Our analysis leverages recent developments in input-output tables in SSA countries. Our model allows for income effects via non-homothetic preferences, substitution and relative price effects, as well as comparative advantage and specialization effects. We calibrate our model to include each SSA country with nine other major economies for each year between 2000 and 2018. We also do a similar set of calibrations for 11 developing ...
Report
Structural change in an open economy
We develop a tractable, three-sector model to study structural change in a two-country world. The model features an endogenous pattern of trade dictated by comparative advantage. We derive an intuitive expression linking sectoral employment shares to sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in productivity and in trade barriers affect expenditure and net export shares, and thus, employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country ...
Working Paper
How much of South Korea’s growth miracle can be explained by trade policy?
South Korea?s growth miracle has been well documented. A large set of institutional and policy reforms in the early 1960s is thought to have contributed to the country?s extraordinary performance. In this paper, we assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. We develop a model of neoclassical growth and trade that highlights two forces by which lower trade barriers can lead to increased per worker GDP: comparative advantage and specialization, and capital accumulation. We calibrate the model and ...
Working Paper
How much of South Korea's growth miracle can be explained by trade policy?
South Korea's growth miracle has been well documented. A large set of institutional and policy reforms in the early 1960s is thought to have contributed to the country's extraordinary performance. In this paper, the authors assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. They develop a model of neoclassical growth and trade that highlights two forces by which lower trade barriers can lead to increased per worker GDP: comparative advantage and specialization, and capital accumulation. The authors calibrate ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Journal Article
International trade: why we don’t have more of it
Globalization has led to an enormous increase in international trade. Over the past 40 years, world exports as a share of output have doubled to almost 25 percent of world output. However, despite this enormous increase, economic evidence suggests that significant barriers to international trade still exist. In ?International Trade: Why We Don?t Have More of It,? Edith Ostapik and Kei-Mu Yi summarize the latest developments in the measurement of international trade barriers.