Tech

nolo

gy, G

eogr

aphy

, and

Tra

de

Eat

on

J., K

ortu

m

S.

Eco

nom

etric

a, 2

002

Pre

sent

ed

by A

udre

y S

aum

on, 0

7.11

.200

8U

nive

rsity

of

Fr

ibou

rg

Con

tent

s

1)

Intro

duct

ion

2)

Theo

retic

al fr

amew

ork

3)

Est

imat

ion

equa

tions

4)

Cou

nter

fact

uals

-

Con

clus

ion

1.In

trodu

ctio

n (1

)

AIM

:

Ana

lysi

sof

the

role

ofte

chno

logy

and

geog

raph

yin

trad

eflo

ws

with

the

Ric

ardi

anm

odel

of D

ornb

usch

, Fis

cher

, and

Sam

uels

on (1

977)

, whi

ch

capt

ures

the

two

com

petin

g fo

rces

of c

ompa

rativ

e ad

vant

age

and

of

geog

raph

ic b

arrie

rs.

Dat

a of

bila

tera

l tra

de in

man

ufac

ture

s fo

r a c

ross

-sec

tion

of 1

9 O

EC

D

coun

tries

in 1

990

Par

amet

ers:

each

cou

ntry

’s s

tate

of t

echn

olog

y: a

bsol

ute

adva

ntag

e: T

i

the

hete

roge

neity

of t

echn

olog

y: c

ompa

rativ

e ad

vant

age:

θge

ogra

phic

bar

riers

: dni

1.In

trodu

ctio

n (2

) -

Cou

nter

fact

uals

Ana

lysi

s of

:

gain

s fro

m tr

ade

in m

anuf

actu

res

how

tech

nolo

gy a

nd g

eogr

aphy

det

erm

ine

patte

rns

of

spec

ializ

atio

n

role

of t

rade

in s

prea

ding

the

bene

fits

of n

ew te

chno

logy

cons

eque

nces

of t

ariff

redu

ctio

nson

trad

eflo

ws

2.Th

eore

tical

fram

ewor

k

(1)

Ric

ardi

anm

odel

with

a c

ontin

uum

of g

oods

Per

fect

com

petit

ion

and

CR

S

Diff

eren

ces

in te

chno

logi

es: d

iffer

ence

s in

effi

cien

cy a

cros

s go

ods

and

coun

tries

Sam

e in

puts

acr

oss

good

s w

ithin

a c

ount

ry

Geo

grap

hica

l bar

riers

with

Sam

uels

on’s

iceb

erg

form

:dni

> 1

Con

sum

er’s

util

ity is

a C

ES

func

tion

2.Th

eore

tical

fram

ewor

k

(2)

Cou

ntry

i’s

shar

ein

cou

ntry

n

Xn:

tota

l spe

ndin

gin

cou

ntry

n

Xni: f

ract

ion

ofgo

ods

that

coun

try n

buy

sfro

mco

untry

i

T i: s

tate

oft

echn

olog

yin

cou

ntry

i

c i: in

put c

osti

n co

untry

i

d ni:

geog

raph

icba

rrier

sbe

twee

ni (

expo

rter)

and

n (im

porte

r)

Θ: p

aram

eter

ofhe

tero

gene

ityof

good

sin

pro

duct

ion

(com

para

tive

adva

ntag

e)

N: n

umbe

rofc

ount

ries

Φn:

pric

epa

ram

eter

ofco

untry

n

()

()

()

∑ =

−

−−

=Φ

=N i

nii

i

nii

i

nnii

i

nni

dc

T

dc

Tdc

TXX

1

θ

θθ

2.Th

eore

tical

fram

ewor

k

(3)

Cou

ntry

i’s

norm

aliz

edim

port

shar

ein

cou

ntry

n

Pric

es If p n

↓rel

ativ

e to

pi

Geo

grap

hica

l bar

riers

If n

beco

mes

mor

e is

olat

ed fr

om i

→i’s

no

rmal

ized

impo

rt sh

are

in c

ount

ry n

de

clin

es

If θ↑

: les

she

tero

gene

ityim

plie

s↓

com

para

tive

adva

ntag

efo

rce:

no

rmal

ized

impo

rt sh

ares

bec

ome

mor

e el

astic

to th

e av

erag

e re

lativ

e pr

ice

and

to g

eogr

aphi

c ba

rrie

rs

2.Th

eore

tical

fram

ewor

k

(4)

Res

ults

(with

19

OE

CD

(199

0), 3

42 o

bs. f

or n

≠ i)

: Nor

mal

ized

im

port

shar

es n

ever

exc

eed

0.2.

→if

dist

ance

(pro

xy fo

r dni

) bet

wee

n n

an

d i

↑,

nor

mal

ized

impo

rt sh

are

in c

ount

ry n

↓

3.E

stim

atio

n eq

uatio

ns

(1)

Gra

vity

equa

tion

as fu

nctio

nof

wag

es, n

orm

aliz

edby

tota

l of s

ales

of

cou

ntry

n a

t hom

e:

The

loga

rithm

isgi

ven

by:

Xnn

: tot

al o

fsal

es o

fcou

ntry

nat

hom

e

wi,

wn:

wag

ein

cou

ntry

i, re

sp. i

n co

untry

n

p i, p

n: pr

ices

in c

ount

ry i,

resp

. in

coun

try n

β: c

onst

ant s

hare

ofla

bour

, val

ue =

0.2

1

Θ: p

aram

eter

ofco

mpa

rativ

e ad

vant

age,

val

ues

= 8.

28 (3

.60,

12.

86)

3.E

stim

atio

n eq

uatio

ns

(2)

whe

re

and

defin

ing

the

com

petit

ion

equa

tion:

Bas

is fo

r the

est

imat

ion:

3.E

stim

atio

n eq

uatio

ns

(3)

Equ

atio

nw

ithsp

ecifi

catio

nof

geog

raph

icba

rrie

rs(G

LS):

d k: e

ffect

of t

he d

ista

nce

betw

een

nan

d il

ying

in th

e kt

hin

terv

alb:

effe

ct o

f nan

d is

harin

g a

bord

erl:

effe

ct o

f nan

d is

harin

g a

lang

uage

e h:e

ffect

of n

and

ibot

h be

long

ing

to tr

adin

g ar

ea h

, (h

= 1,

2)

mn:

over

all d

estin

atio

n ef

fect

, (n

= 1,

…,1

9)

inte

rval

s k

(in m

iles)

: [0,

375

); [3

75, 7

50);

[750

, 150

0); [

1500

, 300

0); [

3000

, 600

0); [

6000

, m

axim

um]

2 tra

ding

are

as: E

C a

nd E

FTA

δ n: e

rror t

erm

cap

ture

s ge

ogra

phic

bar

riers

aris

ing

from

all

othe

r fac

tors

and

is c

ompo

sed

of:

affe

cts

two-

way

trad

e, s

o th

atan

daf

fect

s on

e-w

ay tr

ade.

2 niδ2

2in

niδ

δ=

1 niδ

3.E

stim

atio

n eq

uatio

ns

(4)

Tabl

e 1

3.E

stim

atio

n eq

uatio

ns

(5)

3.E

stim

atio

n eq

uatio

ns

(6)

Tabl

e 2

3.E

stim

atio

n eq

uatio

ns

(7)

4.C

ount

erfa

ctua

ls (1

)

AIM

:

Exa

min

e th

e co

unte

rfact

uals

acc

ordi

ng to

the

wel

fare

crit

erio

n, m

easu

red

as re

al G

DP

:

Dec

ompo

sing

the

chan

ge in

wel

fare

into

inco

me

and

pric

e ef

fect

s gi

ves:

α: a

vera

ge d

eman

d fo

r fin

al m

anuf

actu

red

good

s as

a fr

actio

n of

GD

P, v

alue

= 0

.13

X’n:

coun

terfa

ctua

lval

ue o

fa v

aria

ble

Xn

α nn

np

YW

=

4. 1

st

Cou

nter

fact

ual

4. 1

st

Cou

nter

fact

ual

4. 2

nd

Cou

nter

fact

ual

4. 3

rd

Cou

nter

fact

ual