Working Paper: CEPR ID: DP15068
Authors: Benny Kleinman; Ernest Liu; Stephen J. Redding
Abstract: We develop sufficient statistics of countries' bilateral income and welfare exposure to foreign productivity shocks that are exact for small shocks in the class of models with a constant trade elasticity. For large shocks, we characterize the quality of the approximation, and show it to be almost exact. We compute these sufficient statistics for over 140 countries from 1970-2012. We show that our exposure measures depend on market-size, cross-substitution and cost of living effects. As countries become greater economic friends in terms of welfare exposure, they become greater political friends in terms of United Nations voting and strategic rivalries.
Keywords: productivity growth; trade; welfare
JEL Codes: F14; F15; F50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater economic integration (F15) | political alignment (D72) |
| productivity growth in one country (O49) | own income increase (E25) |
| productivity growth in one country (O49) | relative income of other countries (F40) |
| Chinese productivity growth (O49) | U.S. relative income (D31) |
| Chinese productivity growth (O49) | U.S. aggregate welfare (D69) |
| productivity shocks (O49) | misleading conclusions (G41) |
| cross-substitution effects (C34) | overall income exposure (G19) |
| market size effects (L25) | overall income exposure (G19) |
| increased economic rivalry (F52) | political tensions (F52) |