Putting industries into the idea-flows model: A quantitative analysis

Abstract

This paper studies the dynamic evolution of the patterns of Ricardian comparative advantage from the perspective of knowledge diffusion. The theoretical analysis builds knowledge diffusion into a quantifiable model of trade by allowing for industry-level productivity to evolve through a spatial flow of ideas. This theoretical framework yields a law of motion of industry-level productivity across countries, capturing strong interdependence in the evolution of Ricardian comparative advantage. We calibrate the model to 78 economies and 15 manufacturing industries, spanning from 1991 to 2017. Our quantitative framework captures strong convergence in industry-level productivity and facilitates the identification of the key players that contribute most to global productivity growth. We use our model to draw a rich set of quantitative implications, including a welfare analysis of targeted restrictions of technology trade.