Comments on Ottaviano, Taglioni, and Di Mauro

Transcription

1 Comments on Ottaviano, Taglioni, and Di Mauro Jonathan Eaton, 23 July 2007 Eaton (ECB) OTDM 23 July / 11

2 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate Eaton (ECB) OTDM 23 July / 11

3 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries Eaton (ECB) OTDM 23 July / 11

4 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries inter and intra-industry trade Eaton (ECB) OTDM 23 July / 11

5 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries inter and intra-industry trade A variable mark-up with Eaton (ECB) OTDM 23 July / 11

6 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries inter and intra-industry trade A variable mark-up with lower mark-ups with more competition Eaton (ECB) OTDM 23 July / 11

7 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries inter and intra-industry trade A variable mark-up with lower mark-ups with more competition more e cient rms charge higher mark-ups Eaton (ECB) OTDM 23 July / 11

8 The Melitz-Ottaviano Framework Nice Features I A very tractable framework that can accommodate multiple, heterogeneous countries inter and intra-industry trade A variable mark-up with lower mark-ups with more competition more e cient rms charge higher mark-ups so that they have higher measured TFP (more on this point below) Eaton (ECB) OTDM 23 July / 11

9 The Melitz-Ottaviano Framework Nice Features II Model distinguishes a country s potential distribution of producers from those that actually produce in equilibrium Eaton (ECB) OTDM 23 July / 11

10 The Melitz-Ottaviano Framework Nice Features II Model distinguishes a country s potential distribution of producers from those that actually produce in equilibrium autarky: actual productivity would exactly re ect underlying competitiveness Eaton (ECB) OTDM 23 July / 11

11 The Melitz-Ottaviano Framework Nice Features II Model distinguishes a country s potential distribution of producers from those that actually produce in equilibrium autarky: actual productivity would exactly re ect underlying competitiveness frictionless trade: selection equates productivity across countries, di erences in competitiveness revealed only in range of rms producing Eaton (ECB) OTDM 23 July / 11

12 The Melitz-Ottaviano Framework Nice Features II Model distinguishes a country s potential distribution of producers from those that actually produce in equilibrium autarky: actual productivity would exactly re ect underlying competitiveness frictionless trade: selection equates productivity across countries, di erences in competitiveness revealed only in range of rms producing trade barriers put us somewhere in between Eaton (ECB) OTDM 23 July / 11

13 The Melitz-Ottaviano Framework Nice Features II Model distinguishes a country s potential distribution of producers from those that actually produce in equilibrium autarky: actual productivity would exactly re ect underlying competitiveness frictionless trade: selection equates productivity across countries, di erences in competitiveness revealed only in range of rms producing trade barriers put us somewhere in between the model sorts all this out Eaton (ECB) OTDM 23 July / 11

14 The Melitz-Ottaviano Framework Possible Limitations Focus on equilibrium in which di erentiated products have zero income elasticity of demand (no income e ects) Eaton (ECB) OTDM 23 July / 11

15 The Melitz-Ottaviano Framework Possible Limitations Focus on equilibrium in which di erentiated products have zero income elasticity of demand (no income e ects) Focus on equilibrium with wages xed by equilibrium in background good Eaton (ECB) OTDM 23 July / 11

16 The Melitz-Ottaviano Framework Possible Limitations Focus on equilibrium in which di erentiated products have zero income elasticity of demand (no income e ects) Focus on equilibrium with wages xed by equilibrium in background good Need to check that parameters put every country in this equilibrium Eaton (ECB) OTDM 23 July / 11

17 The Melitz-Ottaviano Framework Possible Limitations Focus on equilibrium in which di erentiated products have zero income elasticity of demand (no income e ects) Focus on equilibrium with wages xed by equilibrium in background good Need to check that parameters put every country in this equilibrium No terms of trade e ects Eaton (ECB) OTDM 23 July / 11

18 Current Implementation Current implementation illustrates the strengths of the framework very well Important set of policy questions Eaton (ECB) OTDM 23 July / 11

19 Current Implementation Current implementation illustrates the strengths of the framework very well Important set of policy questions Theory can confront a rich set of data Eaton (ECB) OTDM 23 July / 11

20 Current Implementation Current implementation illustrates the strengths of the framework very well Important set of policy questions Theory can confront a rich set of data Structural estimation that allows for examination of counterfactuals Eaton (ECB) OTDM 23 July / 11

21 Current Implementation Current implementation illustrates the strengths of the framework very well Important set of policy questions Theory can confront a rich set of data Structural estimation that allows for examination of counterfactuals Connection between theory, data, parameter estimation, and outcome of counterfactuals very transparent, avoiding the black box criticism applied to much structural work Eaton (ECB) OTDM 23 July / 11

22 Quibbles and Questions Sectoral Productivity Why average across sectoral productivity levels? Allow for sectoral comparative advantage Eaton (ECB) OTDM 23 July / 11

23 Quibbles and Questions Sectoral Productivity Why average across sectoral productivity levels? Allow for sectoral comparative advantage Explain intersectoral as well as intrasectoral trade Eaton (ECB) OTDM 23 July / 11

24 Quibbles and Questions Sectoral Productivity Why average across sectoral productivity levels? Allow for sectoral comparative advantage Explain intersectoral as well as intrasectoral trade Other papers (using EK framework): Shikher (Boston University! Su olk), Chor (Harvard University! Singapore) Eaton (ECB) OTDM 23 July / 11

25 Quibbles and Questions The Euro and Pound Sterling The analysis only considers the counterfactual e ect of the UK belonging to the Eurozone through the overall e ect of Eurozone membership, not on the value of the currency. In fact, the pound appreciated relative to the Euro over the period. Exchange rate changes could be manifest in the model as relative wage changes. Eaton (ECB) OTDM 23 July / 11

26 Quibbles and Questions E ect of entry by less e cient rms? How can the entry of less e cient rms from Central and Eastern Europe reduce competitive pressure on Northwestern European rms? Eaton (ECB) OTDM 23 July / 11

27 Quibbles and Questions E ect of entry by less e cient rms? How can the entry of less e cient rms from Central and Eastern Europe reduce competitive pressure on Northwestern European rms? Equation 14 doesn t help me. Eaton (ECB) OTDM 23 July / 11

28 Quibbles and Questions TFP is not e ciency I Firm production function: Q(j) = z(j) [L(j)] β [K (j)] 1 β Eaton (ECB) OTDM 23 July / 11

29 Quibbles and Questions TFP is not e ciency I Firm production function: Q(j) = z(j) [L(j)] β [K (j)] 1 VA TFP: TFP(j) = P(j)Q(j) [L(j)] β [K (j)] 1 = P(j)z(j) β β Eaton (ECB) OTDM 23 July / 11

30 Quibbles and Questions TFP is not e ciency I Firm production function: Q(j) = z(j) [L(j)] β [K (j)] 1 VA TFP: TFP(j) = P(j)Q(j) [L(j)] β [K (j)] 1 = P(j)z(j) Price P(j) is the mark-up M(j) over unit cost: P(j) = M(j) κw β r 1 z(j) so that: TFP(j) = M(j)κw β r 1 β β β β Eaton (ECB) OTDM 23 July / 11

31 Quibbles and Questions TFP is not e ciency II Perfect competition: M(j) = 1 TFP(j) = κw β r 1 β Eaton (ECB) OTDM 23 July / 11

32 Quibbles and Questions TFP is not e ciency II Perfect competition: M(j) = 1 TFP(j) = κw β r 1 β Monopolistic competition: M(j) = TFP(j) = σ σ 1 σ σ 1 κw β r 1 β Eaton (ECB) OTDM 23 July / 11

33 Quibbles and Questions TFP is not e ciency II Perfect competition: M(j) = 1 TFP(j) = κw β r 1 β Monopolistic competition: M(j) = TFP(j) = σ σ 1 σ σ 1 κw β r 1 β z(j) does not appear. Eaton (ECB) OTDM 23 July / 11

34 Quibbles and Questions TFP is not e ciency III MO competition: P(j) = 1 κw β r 1 β + κw β r 1 β 2 z(j) z TFP(j) = P(j)z(j) = z(j) κw β r 1 2 z β Eaton (ECB) OTDM 23 July / 11

35 Quibbles and Questions TFP is not e ciency III MO competition: P(j) = 1 κw β r 1 β + κw β r 1 β 2 z(j) z TFP(j) = P(j)z(j) = z(j) κw β r 1 2 z β Related to, but not the same as z(j): Eaton (ECB) OTDM 23 July / 11

36 Quibbles and Questions TFP is not e ciency III MO competition: P(j) = 1 κw β r 1 β + κw β r 1 β 2 z(j) z TFP(j) = P(j)z(j) = z(j) κw β r 1 2 z β Related to, but not the same as z(j): constant term Eaton (ECB) OTDM 23 July / 11

37 Quibbles and Questions TFP is not e ciency III MO competition: P(j) = 1 κw β r 1 β + κw β r 1 β 2 z(j) z TFP(j) = P(j)z(j) = z(j) κw β r 1 2 z β Related to, but not the same as z(j): constant term slope of 1/2. Eaton (ECB) OTDM 23 July / 11

38 Quibbles and Questions TFP is not e ciency III MO competition: P(j) = 1 κw β r 1 β + κw β r 1 β 2 z(j) z TFP(j) = P(j)z(j) = z(j) κw β r 1 2 z β Related to, but not the same as z(j): constant term slope of 1/2. Suggestion: Estimate everything together. Eaton (ECB) OTDM 23 July / 11