Producer heterogeneity, value-added, and international trade

Arbeitspapier

Standard new trade models depict producers as heterogeneous in total factor productivity. In this paper, I adapt the Eaton and Kortum (2002) model of international trade to incorporate tradable intermediate goods and producer heterogeneity in value-added productivity. In equilibrium, this yields a positive relationship between the international trade elasticity and the share of intermediate goods in production. This relationship is absent from the standard model and is driven by the extensive margin of trade. I then use cross-country sectoral data from 1995 to 2010 and estimate the trade elasticity, finding empirical support for this relationship and for the importance of the extensive margin. This model yields results that are similar to those of the standard model with respect to the overall magnitude of gains from trade. Importantly, however, whereas the standard model suggests that gains from trade are higher in sectors that use intermediate goods, I find that this is no longer true under the value-added heterogeneity model.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2016-54

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Empirical Studies of Trade
• Subject: Trade integration ; Economic models ; International topics ; Productivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alexander, Patrick D.
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2016

Further information

• DOI: doi:10.34989/swp-2016-54
• Handle: http://hdl.handle.net/10419/171945
• Last update: 10.03.2025, 11:42 AM CET