Trade with Correlation
- (pp. 317-53)
Abstract
We develop a trade model with correlation in productivity across countries. The model spans the full class of generalized extreme value import demand systems and implies that countries with relatively dissimilar technology gain more from trade. In the context of a multisector trade model, we provide a tractable and flexible estimation procedure for correlation based on compressing highly disaggregate sectoral data into a few latent factors related to technology classes. We estimate significant heterogeneity in correlation across sectors and countries, which leads to quantitative predictions that are significantly different from estimates of models assuming independent productivity across sectors or countries.Citation
Lind, Nelson, and Natalia Ramondo. 2023. "Trade with Correlation." American Economic Review, 113 (2): 317-53. DOI: 10.1257/aer.20190781Additional Materials
JEL Classification
- C38 Classification Methods; Cluster Analysis; Principal Components; Factor Models
- F11 Neoclassical Models of Trade
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
- L16 Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
- O30 Innovation; Research and Development; Technological Change; Intellectual Property Rights: General