View
218
Download
3
Category
Preview:
Citation preview
Growth, Size, and Openness:a Quantitative Approach
Natalia Ramondo Andres Rodrıguez-ClareUT-Austin and Princeton PSU and NBER
ASSA Meetings, 2010
Growth and the Size of Countries
I In Quasi Endogenous Growth Models (QEGM), growth isdriven by aggregate economies of scale(Jones, 95; Kortum, 97; Eaton and Kortum, 01)
gy = ε · gL
I Basic calibration reveals ε = 0.21
I gy = 0.01 is growth rate of real output per worker in theOECD over the last four decades (K-RC, 05)
I gL = 0.048 is growth rate of R&D employment over the lastdecades in the top five R&D countries (Jones, 02)
The Income-Size Elasticity: Data
I The dynamic relationship gy = ε · gL implies aggregateeconomies of scale,
log yn ∼ ε log Tn
where Tn ≡ φnLn is “equipped labor” in the R&D sector
I We use data on a cross-section of nineteen OECD countries
I Ln is “equipped labor” from K-RC (05), avg. over 90’sI φn is share of R&D employment from WDI, avg. over 90’sI yn is real GDP per worker from PWT, avg. over 90’s
The Income-Size Elasticity: QEGM and Data
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4
0.4
0.5
0.6
0.7
0.8
0.9
1
L as share of total OECD(19)
rea
l in
com
e p
er
wo
rke
r (a
s sh
are
of
US
)
implied by QEGM
data
The Income-Size Elasticity: The “Belgium Puzzle”
elasticity ybelgium/yus
Quasi Endogenous Growth 0.21 0.45
Data OECD(19) 0.084 0.89
The Gains from Openness and the “Belgium Puzzle”
I Of course, countries are not in isolation; they gain frominteracting with the rest of the world through various channels
I We focus on gains arising from Trade, MultinationalProduction (MP), and Diffusion of Ideas
I while trade and MP are directly observable, diffusion is not
I We present an indirect approach to identify diffusion in thedata
I we reconcile the income-size elasticity observed in the data andthe one implied by the quasi-endogenous growth model
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Overview of the Model
I Eaton and Kortum’s (02) Model of Trade
I MP: Technologies can be used for production abroad at a cost(R-RC, 09)
I n sources for technologies, n locations for production
I Diffusion: some foreign technologies can be used for nationalproduction at no cost
I ideas are first “national”, then diffuse and become “global”
I if all ideas were “global”, then no trade, no MP, and sametechnology everywhere
Multinational Production (MP)
I Start by assuming that countries interact only through MP -intradable intermediates (T) and non-tradable final goods (N)
I We use MP data to compute (R-RC, 09)
GMPn =(
ZNnn
Y Nn
)−εN
×(
ZTnn
Y Tn
)−εT
where Z snn is expenditure in goods produced in country n with
technologies from n, in sector s = N, T
I ε = 0.21 = εN + εT = 0.14 + 0.07 (AL, 07; R-RC, 09)
I We calculate the implied income under isolation ydatan /GMPn
Multinational Production (MP)
I Start by assuming that countries interact only through MP -intradable intermediates (T) and non-tradable final goods (N)
I We use MP data to compute (R-RC, 09)
GMPn =(
ZNnn
Y Nn
)−εN
×(
ZTnn
Y Tn
)−εT
where Z snn is expenditure in goods produced in country n with
technologies from n, in sector s = N, T
I ε = 0.21 = εN + εT = 0.14 + 0.07 (AL, 07; R-RC, 09)
I We calculate the implied income under isolation ydatan /GMPn
Multinational Production (MP)
I Start by assuming that countries interact only through MP -intradable intermediates (T) and non-tradable final goods (N)
I We use MP data to compute (R-RC, 09)
GMPn =(
ZNnn
Y Nn
)−εN
×(
ZTnn
Y Tn
)−εT
where Z snn is expenditure in goods produced in country n with
technologies from n, in sector s = N, TI ε = 0.21 = εN + εT = 0.14 + 0.07 (AL, 07; R-RC, 09)
I We calculate the implied income under isolation ydatan /GMPn
Multinational Production (MP)
I Start by assuming that countries interact only through MP -intradable intermediates (T) and non-tradable final goods (N)
I We use MP data to compute (R-RC, 09)
GMPn =(
ZNnn
Y Nn
)−εN
×(
ZTnn
Y Tn
)−εT
where Z snn is expenditure in goods produced in country n with
technologies from n, in sector s = N, TI ε = 0.21 = εN + εT = 0.14 + 0.07 (AL, 07; R-RC, 09)
I We calculate the implied income under isolation ydatan /GMPn
The Income-Size Elasticity: still the “Belgium Puzzle”
elasticity ybelgium/yus
Quasi Endogenous Growth 0.21 0.45
Data OECD(19) 0.084 0.89
MP 0.089 0.84
Trade
I Now, assume that countries interact through MP and Trade
I We use trade data to compute (R-RC, 09)
GTn =(
Xnn
Y Tn
)−εT
where Xnn is expenditure in domestic intermediate (tradable)goods and εT = 0.07 (R-RC, 09)
I We calculate the implied income under isolationyn/(GTn × GMPn)
Trade
I Now, assume that countries interact through MP and Trade
I We use trade data to compute (R-RC, 09)
GTn =(
Xnn
Y Tn
)−εT
where Xnn is expenditure in domestic intermediate (tradable)goods and εT = 0.07 (R-RC, 09)
I We calculate the implied income under isolationyn/(GTn × GMPn)
Trade
I Now, assume that countries interact through MP and Trade
I We use trade data to compute (R-RC, 09)
GTn =(
Xnn
Y Tn
)−εT
where Xnn is expenditure in domestic intermediate (tradable)goods and εT = 0.07 (R-RC, 09)
I We calculate the implied income under isolationyn/(GTn × GMPn)
The Income-Size Elasticity: Closing the Gap
elasticity ybelgium/yus
Quasi Endogenous Growth 0.21 0.45
Data OECD(19) 0.084 0.89
MP 0.089 0.84
MP + Trade 0.095 0.75
Diffusion: Reconciling the “Puzzle”
I Countries interact through MP, Trade and Diffusion of Ideas
I We use data on equipped labor and R&D employment, andε = 0.21 to compute
GDn =(
1− κ + κ∑i Ti
Tn
)ε
I Key parameter is κ = share of “global”, or diffused, ideas
I κ = 6.6% calibrated to match ε = 0.21
I We calculate the implied income under isolation yn/GOn
where GOn = GDn × GMPn × GTn
Diffusion: Reconciling the “Puzzle”
I Countries interact through MP, Trade and Diffusion of Ideas
I We use data on equipped labor and R&D employment, andε = 0.21 to compute
GDn =(
1− κ + κ∑i Ti
Tn
)ε
I Key parameter is κ = share of “global”, or diffused, ideas
I κ = 6.6% calibrated to match ε = 0.21
I We calculate the implied income under isolation yn/GOn
where GOn = GDn × GMPn × GTn
Diffusion: Reconciling the “Puzzle”
I Countries interact through MP, Trade and Diffusion of Ideas
I We use data on equipped labor and R&D employment, andε = 0.21 to compute
GDn =(
1− κ + κ∑i Ti
Tn
)ε
I Key parameter is κ = share of “global”, or diffused, ideas
I κ = 6.6% calibrated to match ε = 0.21
I We calculate the implied income under isolation yn/GOn
where GOn = GDn × GMPn × GTn
Diffusion: Reconciling the “Puzzle”
I Countries interact through MP, Trade and Diffusion of Ideas
I We use data on equipped labor and R&D employment, andε = 0.21 to compute
GDn =(
1− κ + κ∑i Ti
Tn
)ε
I Key parameter is κ = share of “global”, or diffused, ideasI κ = 6.6% calibrated to match ε = 0.21
I We calculate the implied income under isolation yn/GOn
where GOn = GDn × GMPn × GTn
Diffusion: Reconciling the “Puzzle”
I Countries interact through MP, Trade and Diffusion of Ideas
I We use data on equipped labor and R&D employment, andε = 0.21 to compute
GDn =(
1− κ + κ∑i Ti
Tn
)ε
I Key parameter is κ = share of “global”, or diffused, ideasI κ = 6.6% calibrated to match ε = 0.21
I We calculate the implied income under isolation yn/GOn
where GOn = GDn × GMPn × GTn
The Income-Size Elasticity: Adding Diffusion
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.40.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
size (as share of OECD L)
real i
nco
me p
er
work
er
(as
share
of U
S)
implied by QEGM
adjusted by GO
The Income-Size Elasticity: the “Belgium Puzzle”Reconciled
elasticity ybelgium/yus
Quasi Endogenous Growth 0.21 0.45
Data OECD(19) 0.084 0.89
MP 0.089 0.84
MP + Trade 0.097 0.75
MP + Trade + Diffusion (κ = 6.6%) 0.21 0.50
The Gains from MP, Trade, and Diffusion
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.41
1.5
2
2.5
size (as share of OECD L)
Gain
s
GOGMPTGMP
Figure: Gains and Size. OECD(19).
The “Belgium Puzzle”: More Countries (prelim.)
real income per worker (relative to U.S.)data y/GMP y/GTMP y/GO T 0.21
Belgium 0.89 0.80 0.73 0.47 0.45
Chile 0.38 0.38 0.37 0.16 0.29
Mexico 0.39 0.38 0.38 0.20 0.37
China 0.08 0.08 0.08 0.07 0.66
I GO = GT × GMP × GD
I diffusion calculated with κ = 6.6%
Final remarks
I Gains from Openness for a country arise from many possiblechannels
I We focus on Trade, Multinational Production, and Diffusion ofIdeas
I We show that to reconcile key facts about Growth, Size, andOpenness we need to include diffusion of ideas acrosscountries
I even if a small country is closed to trade and MP, the datasuggest that this country is much richer than implied by itssmall size
I Next step: extension to many countries with different diffusionrates
Final remarks
I Gains from Openness for a country arise from many possiblechannels
I We focus on Trade, Multinational Production, and Diffusion ofIdeas
I We show that to reconcile key facts about Growth, Size, andOpenness we need to include diffusion of ideas acrosscountries
I even if a small country is closed to trade and MP, the datasuggest that this country is much richer than implied by itssmall size
I Next step: extension to many countries with different diffusionrates
Final remarks
I Gains from Openness for a country arise from many possiblechannels
I We focus on Trade, Multinational Production, and Diffusion ofIdeas
I We show that to reconcile key facts about Growth, Size, andOpenness we need to include diffusion of ideas acrosscountries
I even if a small country is closed to trade and MP, the datasuggest that this country is much richer than implied by itssmall size
I Next step: extension to many countries with different diffusionrates
Final remarks
I Gains from Openness for a country arise from many possiblechannels
I We focus on Trade, Multinational Production, and Diffusion ofIdeas
I We show that to reconcile key facts about Growth, Size, andOpenness we need to include diffusion of ideas acrosscountries
I even if a small country is closed to trade and MP, the datasuggest that this country is much richer than implied by itssmall size
I Next step: extension to many countries with different diffusionrates
Final remarks
I Gains from Openness for a country arise from many possiblechannels
I We focus on Trade, Multinational Production, and Diffusion ofIdeas
I We show that to reconcile key facts about Growth, Size, andOpenness we need to include diffusion of ideas acrosscountries
I even if a small country is closed to trade and MP, the datasuggest that this country is much richer than implied by itssmall size
I Next step: extension to many countries with different diffusionrates
Recommended