Daniele Verdini (IRES, UCLouvain)

June 11, 2019

12:45 - 2:00 pm


D-109, Place Montesquieu 3

Daniele Verdini


will give a presentation on

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


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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