Click here to load reader

Growth, Size, and Openness: a Quantitative Approach

  • View
    215

  • Download
    3

Embed Size (px)

Text of Growth, Size, and Openness: a Quantitative Approach

  • Growth, Size, and Openness:a Quantitative Approach

    Natalia Ramondo Andres Rodrguez-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 = gL

    I Basic calibration reveals = 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 = gL implies aggregateeconomies of scale,

    log yn log Tn

    where Tn nLn 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 90sI n is share of R&D employment from WDI, avg. over 90sI yn is real GDP per worker from PWT, avg. over 90s

  • 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 Kortums (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 Kortums (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 Kortums (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 Kortums (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 Kortums (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 Kortums (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 =(

    ZNnnY Nn

    )eN

    (ZTnnY Tn

    )eTwhere Z snn is expenditure in goods produced in country n withtechnologies from n, in sector s = N, T

    I = 0.21 = N + T = 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 =(

    ZNnnY Nn

    )eN

    (ZTnnY Tn

    )eTwhere Z snn is expenditure in goods produced in country n withtechnologies from n, in sector s = N, T

    I = 0.21 = N + T = 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 =(

    ZNnnY Nn

    )eN

    (ZTnnY Tn

    )eTwhere Z snn is expenditure in goods produced in country n withtechnologies from n, in sector s = N, T

    I = 0.21 = N + T = 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 =(

    ZNnnY Nn

    )eN

    (ZTnnY Tn

    )eTwhere Z snn is expenditure in goods produced in country n withtechnologies from n, in sector s = N, T

    I = 0.21 = N + T = 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 =(

    XnnY Tn

    )Twhere Xnn is expenditure in domestic intermediate (tradable)goods and T = 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 =(

    XnnY Tn

    )Twhere Xnn is expenditure in domestic intermediate (tradable)goods and T = 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 =(

    XnnY Tn

    )Twhere Xnn is expenditure in domestic intermediate (tradable)goods and T = 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, and = 0.21 to compute

    GDn =(

    1 + i TiTn

    )

    I Key parameter is = share of global, or diffused, ideas

    I = 6.6% calibrated to match = 0.21

    I We calculate the implied income under isolation yn/GOnwhere 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, and = 0.21 to compute

    GDn =(

    1 + i TiTn

    )

    I Key parameter is = share of global, or diffused, ideas

    I = 6.6% calibrated to match = 0.21

    I We calculate the implied income under isolation yn/GOnwhere 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, and = 0.21 to compute

    GDn =(

    1 + i TiTn

    )

    I Key parameter is = share of global, or diffused, ideas

    I = 6.6% calibrated to match = 0.21

    I We calculate the implied income under isolation yn/GOnwhere 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, and = 0.21 to compute

    GDn =(

    1 + i TiTn

    )

    I Key parameter is = share of