In the Ricardian model of trade, productivity differences across countries and industries determine the patterns of international trade-hence, comparative advantage (Costinot et al., 2012). As productivity differences increase over time, comparative advantage strengthens. Standard models of trade take these productivity differences, and therefore comparative advantage forces, as given (Eaton and Kortum, 2002, and Caliendo and Parro, 2015). However, understanding the determinants of comparative advantage is important in analyzing welfare gains from trade. Recently, several articles have studied endogenous forces that may cause differences in productivity across countries and industries (Sampson, 2017, Somale, 2017, and Cai et al., 2017). In these studies, innovation and its international diffusion across countries and industries are the main sources of differences in productivity. Countries and industries differ in both their ability to do research and development (R&D) and their ability to adopt innovations that have been developed elsewhere (i.e., international technology diffusion). Productivity differences across countries determine patterns of international trade-hence, comparative advantage. We use a multi-industry model of international trade to estimate a measure of industry productivity. We then quantify the effect that domestic innovation and technology diffusion have in explaining differences in productivity across countries and industries. Consistent with standard growth theories, we find the following: (i) Higher-income countries benefit more from domestic innovation than lower-income countries, whereas lower-income countries benefit more from technology diffusion; and (ii) the speed of convergence is larger for those countries and industries that are farther away from the technology frontier. To the extent that productivity differences determine comparative advantage, our findings suggest that domestic innovation and technology diffusion are endogenous sources of comparative advantage. (JEL F12, O33, O41, O47)
A n individual's wealth varies with age. Most people are born with little to no financial wealth and, as they age, they save part of their income to accumulate wealth or sometimes borrow to finance education, which creates debt. Once people reach retirement, they stop accumulating wealth and start spending down their savings. Thus, the richest people can often be found among those who are about to retire. Age is not the only determinant of wealth. People's wealth varies with how much they are given by their parents, their income, and their decisions on how much to consume or save and how to invest their wealth.
P ollution caused by economic activity can both affect health and motivate policymaking decisions. Accord ing to the Environmental Protection Agency (EPA), air pollution, for example, "can affect the heart and lungs and create serious health effects." Pollution in the form of greenhouse gas emissions causes concerns about climate change and global warming. In this essay, we propose to relate pollution to the eco nomic activity that generated it. Our point is not to dispute the quantity of pollution, nor is it to argue about the effects of pollution on people's health or the climate. Instead, we suggest that the costs of pollution should be assessed rela tive to the benefit of said economic activity. If both eco nomic activity and pollution are rising, one ought to ask whether the costs are rising faster than the benefit...or the opposite. We find that pollution in the United States, measured by particulate matter or CO 2 emissions, rises with economic activity, but at a noticeably slower pace. According to the EPA, CO 2 emissions-the most abundant greenhouse gasincreased by 10 percent between 1990 and 2014, or an aver age annual rate of 0.4 percent. 1 During the same period, U.S. gross domestic product (GDP) increased at an average annual rate of 2.4 percent. The difference between these two figures indicates that the United States produced less CO 2 per unit of output each year. Another indicator of economic growth-often of greater interest to economists-is GDP per capita, which is GDP divided by the population. During the 19902014 period, the U.S. population grew by 1 percent per year. Thus, GDP
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