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Tech
nolo
gy, G
eogr
aphy
, and
Tra
de
Eat
on
J., K
ortu
m
S.
Eco
nom
etric
a, 2
002
Pre
sent
ed
by A
udre
y S
aum
on, 0
7.11
.200
8U
nive
rsity
of
Fr
ibou
rg
Con
tent
s
1)
Intro
duct
ion
2)
Theo
retic
al fr
amew
ork
3)
Est
imat
ion
equa
tions
4)
Cou
nter
fact
uals
-
Con
clus
ion
1.In
trodu
ctio
n (1
)
AIM
:
Ana
lysi
sof
the
role
ofte
chno
logy
and
geog
raph
yin
trad
eflo
ws
with
the
Ric
ardi
anm
odel
of D
ornb
usch
, Fis
cher
, and
Sam
uels
on (1
977)
, whi
ch
capt
ures
the
two
com
petin
g fo
rces
of c
ompa
rativ
e ad
vant
age
and
of
geog
raph
ic b
arrie
rs.
Dat
a of
bila
tera
l tra
de in
man
ufac
ture
s fo
r a c
ross
-sec
tion
of 1
9 O
EC
D
coun
tries
in 1
990
Par
amet
ers:
each
cou
ntry
’s s
tate
of t
echn
olog
y: a
bsol
ute
adva
ntag
e: T
i
the
hete
roge
neity
of t
echn
olog
y: c
ompa
rativ
e ad
vant
age:
θge
ogra
phic
bar
riers
: dni
1.In
trodu
ctio
n (2
) -
Cou
nter
fact
uals
Ana
lysi
s of
:
gain
s fro
m tr
ade
in m
anuf
actu
res
how
tech
nolo
gy a
nd g
eogr
aphy
det
erm
ine
patte
rns
of
spec
ializ
atio
n
role
of t
rade
in s
prea
ding
the
bene
fits
of n
ew te
chno
logy
cons
eque
nces
of t
ariff
redu
ctio
nson
trad
eflo
ws
2.Th
eore
tical
fram
ewor
k
(1)
Ric
ardi
anm
odel
with
a c
ontin
uum
of g
oods
Per
fect
com
petit
ion
and
CR
S
Diff
eren
ces
in te
chno
logi
es: d
iffer
ence
s in
effi
cien
cy a
cros
s go
ods
and
coun
tries
Sam
e in
puts
acr
oss
good
s w
ithin
a c
ount
ry
Geo
grap
hica
l bar
riers
with
Sam
uels
on’s
iceb
erg
form
:dni
> 1
Con
sum
er’s
util
ity is
a C
ES
func
tion
2.Th
eore
tical
fram
ewor
k
(2)
Cou
ntry
i’s
shar
ein
cou
ntry
n
Xn:
tota
l spe
ndin
gin
cou
ntry
n
Xni: f
ract
ion
ofgo
ods
that
coun
try n
buy
sfro
mco
untry
i
T i: s
tate
oft
echn
olog
yin
cou
ntry
i
c i: in
put c
osti
n co
untry
i
d ni:
geog
raph
icba
rrier
sbe
twee
ni (
expo
rter)
and
n (im
porte
r)
Θ: p
aram
eter
ofhe
tero
gene
ityof
good
sin
pro
duct
ion
(com
para
tive
adva
ntag
e)
N: n
umbe
rofc
ount
ries
Φn:
pric
epa
ram
eter
ofco
untry
n
()
()
()
∑ =
−
−−
=Φ
=N i
nii
i
nii
i
nnii
i
nni
dc
T
dc
Tdc
TXX
1
θ
θθ
2.Th
eore
tical
fram
ewor
k
(3)
Cou
ntry
i’s
norm
aliz
edim
port
shar
ein
cou
ntry
n
Pric
es If p n
↓rel
ativ
e to
pi
Geo
grap
hica
l bar
riers
If n
beco
mes
mor
e is
olat
ed fr
om i
→i’s
no
rmal
ized
impo
rt sh
are
in c
ount
ry n
de
clin
es
If θ↑
: les
she
tero
gene
ityim
plie
s↓
com
para
tive
adva
ntag
efo
rce:
no
rmal
ized
impo
rt sh
ares
bec
ome
mor
e el
astic
to th
e av
erag
e re
lativ
e pr
ice
and
to g
eogr
aphi
c ba
rrie
rs
2.Th
eore
tical
fram
ewor
k
(4)
Res
ults
(with
19
OE
CD
(199
0), 3
42 o
bs. f
or n
≠ i)
: Nor
mal
ized
im
port
shar
es n
ever
exc
eed
0.2.
→if
dist
ance
(pro
xy fo
r dni
) bet
wee
n n
an
d i
↑,
nor
mal
ized
impo
rt sh
are
in c
ount
ry n
↓
3.E
stim
atio
n eq
uatio
ns
(1)
Gra
vity
equa
tion
as fu
nctio
nof
wag
es, n
orm
aliz
edby
tota
l of s
ales
of
cou
ntry
n a
t hom
e:
The
loga
rithm
isgi
ven
by:
Xnn
: tot
al o
fsal
es o
fcou
ntry
nat
hom
e
wi,
wn:
wag
ein
cou
ntry
i, re
sp. i
n co
untry
n
p i, p
n: pr
ices
in c
ount
ry i,
resp
. in
coun
try n
β: c
onst
ant s
hare
ofla
bour
, val
ue =
0.2
1
Θ: p
aram
eter
ofco
mpa
rativ
e ad
vant
age,
val
ues
= 8.
28 (3
.60,
12.
86)
3.E
stim
atio
n eq
uatio
ns
(2)
whe
re
and
defin
ing
the
com
petit
ion
equa
tion:
Bas
is fo
r the
est
imat
ion:
3.E
stim
atio
n eq
uatio
ns
(3)
Equ
atio
nw
ithsp
ecifi
catio
nof
geog
raph
icba
rrie
rs(G
LS):
d k: e
ffect
of t
he d
ista
nce
betw
een
nan
d il
ying
in th
e kt
hin
terv
alb:
effe
ct o
f nan
d is
harin
g a
bord
erl:
effe
ct o
f nan
d is
harin
g a
lang
uage
e h:e
ffect
of n
and
ibot
h be
long
ing
to tr
adin
g ar
ea h
, (h
= 1,
2)
mn:
over
all d
estin
atio
n ef
fect
, (n
= 1,
…,1
9)
inte
rval
s k
(in m
iles)
: [0,
375
); [3
75, 7
50);
[750
, 150
0); [
1500
, 300
0); [
3000
, 600
0); [
6000
, m
axim
um]
2 tra
ding
are
as: E
C a
nd E
FTA
δ n: e
rror t
erm
cap
ture
s ge
ogra
phic
bar
riers
aris
ing
from
all
othe
r fac
tors
and
is c
ompo
sed
of:
affe
cts
two-
way
trad
e, s
o th
atan
daf
fect
s on
e-w
ay tr
ade.
2 niδ2
2in
niδ
δ=
1 niδ
4.C
ount
erfa
ctua
ls (1
)
AIM
:
Exa
min
e th
e co
unte
rfact
uals
acc
ordi
ng to
the
wel
fare
crit
erio
n, m
easu
red
as re
al G
DP
:
Dec
ompo
sing
the
chan
ge in
wel
fare
into
inco
me
and
pric
e ef
fect
s gi
ves:
α: a
vera
ge d
eman
d fo
r fin
al m
anuf
actu
red
good
s as
a fr
actio
n of
GD
P, v
alue
= 0
.13
X’n:
coun
terfa
ctua
lval
ue o
fa v
aria
ble
Xn
α nn
np
YW
=