Ricardian Selection

49 Pages Posted: 11 May 2010

Date Written: October 16, 2009

Abstract

We analyze the foundations of the relationship between trade and total factor productivity (TFP) in the Ricardian model. Under general assumptions about the autarky distributions of industry productivities, trade openness raises TFP. This is due to the selection effect of international competition – driven by comparative advantages – which makes "some" high- and "many" low-productivity industries exit the market. We derive a model-based measure of this effect that requires only production and trade data. In a sample of 41 countries, we find that Ricardian selection raised manufacturing TFP by 11% above the autarky level in 2005 (as against 6% in 1985), with a neat positive time trend and large cross-country differences.

Keywords: selection effect, Eaton-Kortum model, international competition

JEL Classification: F10, D24, O40

Suggested Citation

Finicelli, Andrea and Pagano, Patrizio and Sbracia, Massimo, Ricardian Selection (October 16, 2009). Bank of Italy Temi di Discussione (Working Paper) No. 728. Available at SSRN: https://ssrn.com/abstract=1601828 or http://dx.doi.org/10.2139/ssrn.1601828

Andrea Finicelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Patrizio Pagano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimo Sbracia (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy
+39 06 4792 3860 (Phone)
+39 06 4792 4118 (Fax)

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