Trade Openness and Cross-country Income Differences

Hepenstrick, Christian and Tarasov, Alexander (29. May 2013): Trade Openness and Cross-country Income Differences. SFB/TR 15 Discussion Paper No. 402

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%.

• Item Type: Paper
• Form of publication: Preprint
• Keywords: General equilibrium, market access costs, development accounting, experiments
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B7 - Globalisierung und der Anstieg der Vorstandsbezüge
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: F11, F12, O10, O40
• Language: English