Abstract
This chapter discusses extensions of the simple 2 × 2 Ricardo model. In particular, it considers extensions to several goods and countries, the possibility of international technology diffusion, and the possibility of imperfect labor mobility between sectors. The chapter shows how these extensions make the Ricardian framework a useful tool for understanding data, and, thus, help to put Ricardian Trade Theory (back) to work.
Note: This chapter is based on a transcription of the presentation given at the Conference “Celebrating 200 Years of Ricardian Trade Theory” on May 12, 2017, at the University of Basel, Switzerland.
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Notes
- 1.
Cecilia Fieler, Assistant Professor of Economics, University of Pennsylvania, Member of the International Growth Centre (IGC) Trade Program.
- 2.
Eaton and Kortum (1999).
- 3.
Leontief (1954).
- 4.
The probability that country i can provide variety ω to destination n at cost less than c is:
$$ \Pr \left[\frac{d_{ni}{w}_i}{Z_i^j}\le c\right]=1-\exp \left[-{T}_i^j{\left({d}_{ni}{w}_i\right)}^{-\theta }{c}^{\theta}\right]. $$ - 5.
Given \( {z}_i^j\Big(\omega \)) the probability that country i is the cheapest source at home is:
$$ \Pr \left[\frac{d_{n1}{w}_1}{Z_1^j}\ge \frac{w_i}{z_i^j\left(\omega \right)}\right]\times \Pr \left[\frac{d_{n2}{w}_2}{Z_2^j}\ge \frac{w_i}{z_i^j\left(\omega \right)}\right]\times \dots \times \Pr \left[\frac{d_{nN}{w}_N}{Z_N^j}\ge \frac{w_i}{z_i^j\left(\omega \right)}\right]=\exp \left(-{w}_i^{\theta }{\sum}_{i^{\prime}\ne i}\left[{T}_{i^{\prime}}^j{\left({d}_{n{i}^{\prime }}{w}_{i^{\prime }}\right)}^{-\theta}\right]\ {z}_i^j{\left(\omega \right)}^{-\theta}\right), $$where we normalize d ii = 1. To get the average productivity in the varieties country i actually produces we need to weight each z in expression (12.5) by this probability.
- 6.
Tombe (2015).
- 7.
Lakagos and Waugh (2013).
- 8.
Worker l in country i has an efficiency (or psychic benefit) \( {e}_i^j(l) \) working in sector j, that is drawn from the distribution \( {G}_i^j(e)=\Pr \left[{E}_i^j(l)\le e\right]=\exp \left(-{U}_i^j{e}^{-\kappa}\right) \).
- 9.
See also Monte, Redding, and Rossi-Hansberg (2015).
- 10.
Caliendo, Opromolla, Parro, and Sforza (2017).
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Eaton, J. (2017). Putting Ricardian Trade Theory to Work in 2017: Current Empirical Analyses. In: Jones, R., Weder, R. (eds) 200 Years of Ricardian Trade Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-60606-4_12
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