Daniele Verdini (IRES, UCLouvain)

June 11, 2019

12:45 - 2:00 pm

Louvain-la-Neuve

D-109, Place Montesquieu 3

Daniele Verdini

(IRES)

will give a presentation on

Demand Shocks, Sector-level Externalities and the Evolution of the Comparative Advantage

Abstract:

Does production size play any role in industrial productivity? And how important is its contribution to the evolution of comparative advantage over time? In this paper, I develop a multi-country multi-sector general equilibrium model of trade characterized by the presence of inter-temporal sector-level externalities. The model makes explicit the mechanism linking size and productivity and delivers at the equilibrium a dynamic gravity model of trade that can be empirically tested. I structurally estimate the dynamic scale parameter by exploiting exogenous demand shocks uncorrelated to any supply-side component of production. Results show that production scale can be a potential source of comparative advantage, with an estimated average dynamic scale parameter of 0.18. However, potential gains are heterogeneous, with values ranging between 0.12 and 0.20 across different industries.

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