What Goods Do Countries Trade? New Ricardian Predictions
NBER Working Paper No. 13691
Though one of the pillars of the theory of international trade, the extreme predictions of the Ricardian model have made it unsuitable for empirical purposes. A seminal contribution of Eaton and Kortum (2002) is to demonstrate that random productivity shocks are sufficient to make the Ricardian model empirically relevant. While successful at explaining trade volumes, their model remains silent with regards to one important question: What goods do countries trade? Our main contribution is to generalize their approach and provide an empirically meaningful answer to this question.