Capital accumulation and the systematic reallocation of economic activity across sectors are two of the most salient features of economic development. These two features are interconnected through the production of various types of capital and heterogeneous usage intensity across sectors, which is summarized by the investment network. Our paper introduces the first harmonized measures of the investment network across the development spectrum and documents novel empirical regularities. We propose a simple theory linking disparities in this network to disparities in income per capita across countries. We show that Domar weights and the elasticity of output to sectorial productivity are nontrivial functions of the investment network and equilibrium sectorial investment rates. For our sample of58 countries, we show that 33% of cross-country differences in income per capita can be ac-counted for by disparities in the investment network. These differences are twice as large as the role of capital in income disparities estimated through standard development accounting
We state closed-form expressions for steady state gains from trade that apply in a class of dynamic trade models that includes dynamic versions of the Krugman (1980), Melitz (2003), and customer capital (e.g., Arkolakis, 2010) models. The gains are a function of the domestic trade share and the long-run elasticity of trade with respect to iceberg trade costs, similar to Arkolakis, Costinot, and Rodríguez-Clare (2012). In contrast to static settings, in a dynamic world this longrun elasticity cannot be estimated in one step by relying on tariff variation as shifters of trade costs. We show, instead, that this object can be recovered by combining two tariff elasticity estimates: the long- and the short-run. Thus, the short-run tariff elasticity indirectly enters the formula for the steady state gains from trade. Our main substantive finding is that the gains from trade are large. They depend crucially on the short-run tariff elasticity, and can be arbitrarily large even if the long-run tariff elasticity is high. Accounting for the transition path has a minor impact on the magnitude of the gains from trade, relative to simply comparing steady states.Presenter’s BioPresentation Slides
4:00 PM – 5:00 PM
Monica Morlacco (University of Southern California)
Title: “How Wide is the Market Border? Perspectives from Global Value Chains“
Prof. Martin Rotemberg (New York University, Arts & Science) Prof. Sharon Traiberman (New York University, Arts & Science) Prof. Simone Lenzu (New York University, Stern School of Business) Prof. Anna Vitali (New York University, Arts & Science)
Julieta Caunedo (Cornell University)
Monica Morlacco (University of Southern California)
