Trade-Revealed TFP

33 Pages Posted: 11 May 2010

Date Written: October 16, 2009

Abstract

We introduce a novel methodology to measure the relative TFP of the tradeable sector across countries, based on the relationship between trade and TFP in the model of Eaton and Kortum (2002). The logic of our approach is to measure TFP not from its "primitive" (the production function) but from its observed implications. In particular, we estimate TFPs as the productivities that best fit data on trade, production, and wages. Applying this methodology to a sample of 19 OECD countries, we estimate the TFP of each country's manufacturing sector from 1985 to 2002. Our measures are easy to compute and, with respect to the standard development-accounting approach, are no longer mere residuals. Nor do they yield common "anomalies", such as the higher TFP of Italy relative to the US.

Keywords: Multi-factor productivity, TFP measurement, Eaton-Kortum model

JEL Classification: F1, D24, O4

Suggested Citation

Finicelli, Andrea and Pagano, Patrizio and Sbracia, Massimo, Trade-Revealed TFP (October 16, 2009). Bank of Italy Temi di Discussione (Working Paper) No. 729. Available at SSRN: https://ssrn.com/abstract=1601830 or http://dx.doi.org/10.2139/ssrn.1601830

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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