TY  - JOUR
AU  - Corsetti,Giancarlo
AU  - Martin,Philippe
AU  - Pesenti,Paolo A.
TI  - Productivity Spillovers, Terms of Trade and the "Home Market Effect"
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11165
PY  - 2005
Y2  - March 2005
UR  - http://www.nber.org/papers/w11165
L1  - http://www.nber.org/papers/w11165.pdf
N1  - Author contact info:
Giancarlo Corsetti
Faculty of Economics
Cambridge University
Sidgwick Avenue
CB3 9DD Cambridge, Cambs
United Kingdom
Tel: +44(0)1223335235
E-Mail: giancarlo.corsetti@gmail.com

Philippe Martin
Sciences Po
27, rue Saint-Guillaume
75007 Paris
France
E-Mail: philippe.martin@sciences-po.fr

Paolo A. Pesenti
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-5493
Fax: 212/720-6831
E-Mail: paolo.pesenti@ny.frb.org
AB  - This paper analyzes the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a distinction between productivity gains that enhance manufacturing efficiency, and gains that lower the cost of firms' entry and product differentiation. Our model suggests that countries with lower manufacturing costs have higher GDP but supply a smaller number of goods at a lower international price. Countries with lower entry and differentiation costs also have higher GDP, but supply a larger array of goods at improved terms of trade. The sign of the international welfare spillovers depends on terms of trade, but also on consumers' taste for variety. Higher domestic demand has macroeconomic implications that are similar to those of a reduction in firms' entry costs.
ER  -