Working Paper: NBER ID: w23332
Authors: Lorenzo Caliendo; Fernando Parro; Aleh Tsyvinski
Abstract: We develop a model of the world economy as input-output relationships subject to distortions. We then propose a methodology to solve the identification problem, common to the literature on misallocation in input-output relationships, of separating sectoral TFPs from the sectoral distortions. Using both the input shares and the consumption shares within the CES production and CES consumption structure we derive simple closed-form sufficient statistics for the sectoral distortions and for the sectoral TFPs. We then derive a closed-form solution of the elasticities of each entry in the world input-output matrix to distortions. We compute a total of more than half a million internal distortions and TFPs and document significant heterogeneity of those across countries and sectors. We then calculate the whole matrix of about two million elasticities to distortions and TFPs of the input-output matrix of the world economy. We show that internal (within a given country) distortions significantly affect the structure of the economy of that country and have sizeable cross effects on the input-output matrix of other countries. We then find that the world GDP elasticity to changes in internal distortions is an order of magnitude larger than that of the external distortions.
Keywords: input-output relationships; distortions; total factor productivity; economic structure; global economy
JEL Codes: C67; E00; F00; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| internal distortions (F12) | economic structure (L16) |
| internal distortions (F12) | input-output matrix of other countries (D57) |
| reduction in internal distortions (F12) | increased expenditure shares across sectors (E20) |
| internal distortions (F12) | changes in wages and prices globally (F66) |
| changes in internal distortions (F12) | alterations in input-output shares across all sectors and countries (F62) |
| internal distortions (F12) | aggregate productivity and output (E23) |