Empirical Productivity Distributions and International Trade

02  December 2021    3:00 pm CET

Katharina Erhardt, Heinrich-Heine-University Düsseldorf (Germany)

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The presentation is based on a paper co-authored with Peter H. Egger and Sergey Nigai.

We develop a novel theory-consistent methodology that allows us to recover nonparametric firm-level productivity distributions for 15 countries and 18 sectors using data on aggregated firm-level sales.

We use these distributions against the backdrop of a multi-sector version of a standard Melitz (2003) trade model to quantify the role of technology in shaping international trade flows. We find that, on average, absolute advantage measured as productivity differences across countries within sectors explains 14% of the total variation in bilateral trade shares. In contrast, on average, comparative advantage measured as productivity differences across sectors within countries explains 43% of the variation in trade flows in the workhorse model. We also demonstrate that empirical productivity distributions entail quantitatively important micro-to-macro implications for marginal responses of trade flows to changes in trade costs, for gravity-type estimation of trade models, and for comparative statics isomorphism between the customarily parameterized models of international trade. We confirm the theoretical predictions derived under empirical productivity distributions in the data.

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Katharina Erhardt

Katharina Erhardt is professor of economics at Heinrich-Heine-University Düsseldorf. Prior to this appointment she was a postdoctoral researcher at MIT and ETH Zürich. She completed her PhD at ETH Zürich in 2017.

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Keywords: Empirical trade analysis; Productivity distributions; Technology; Quantitative trade analysis

JEL classification: F1; F10; F12