This paper analyzes the international transmission and welfare implications of productivity gains and changes in market size when macroeconomic adjustment occurs both along the intensive mar- gin of trade (changes in the relative price of existing varieties of tradable goods) and the extensive margin (creation and destruction of varieties). We draw a distinction between productivity gains that enhance manufacturing e¢ ciency, and gains that lower the cost of .rms.entry and of prod- uct di¤erentiation. Countries with lower manufacturing costs have higher GDP but supply their products at lower international prices. Instead, countries with lower entry costs supply a larger array of goods at improved terms of trade. Output growth driven by demographic expansions, as well as governmernt spending, is associated with an improvement in international relative prices and .rms. entry. While trade liberalization may result in a smaller array of goods available to consumers, e¢ ciency gains from deeper economic integration bene.t consumers via lower goods prices. The international transmission mechanism and the welfare spillovers vary under di¤erent asset market structures, depending on trade costs, the elasticity of labor supply, and consumers. taste for varieties.

Corsetti, G., Martin, P., Pesenti, P. (2007). Productivity, Terms of Trade and the Home Market Effect. INTERNATIONAL ECONOMIC JOURNAL, 73, 99-127 [10.1016/j.jinteco.2006.08.005].

Productivity, Terms of Trade and the Home Market Effect

CORSETTI, Giancarlo;
2007-01-01

Abstract

This paper analyzes the international transmission and welfare implications of productivity gains and changes in market size when macroeconomic adjustment occurs both along the intensive mar- gin of trade (changes in the relative price of existing varieties of tradable goods) and the extensive margin (creation and destruction of varieties). We draw a distinction between productivity gains that enhance manufacturing e¢ ciency, and gains that lower the cost of .rms.entry and of prod- uct di¤erentiation. Countries with lower manufacturing costs have higher GDP but supply their products at lower international prices. Instead, countries with lower entry costs supply a larger array of goods at improved terms of trade. Output growth driven by demographic expansions, as well as governmernt spending, is associated with an improvement in international relative prices and .rms. entry. While trade liberalization may result in a smaller array of goods available to consumers, e¢ ciency gains from deeper economic integration bene.t consumers via lower goods prices. The international transmission mechanism and the welfare spillovers vary under di¤erent asset market structures, depending on trade costs, the elasticity of labor supply, and consumers. taste for varieties.
2007
Corsetti, G., Martin, P., Pesenti, P. (2007). Productivity, Terms of Trade and the Home Market Effect. INTERNATIONAL ECONOMIC JOURNAL, 73, 99-127 [10.1016/j.jinteco.2006.08.005].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11590/121517
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