Specialization: Pro- and Anti-globalizing, 1990-2002
Specialization alters the incidence of manufacturing trade costs to buyers and sellers, with pro-and anti-globalizing effects on 76 countries from 1990-2002. The structural gravity model yields measures of Constructed Home Bias (the ratio of predicted local trade to predicted frictionless local trade) and the Total Factor Productivity effect of changing incidence. A bit more than half the world's countries experience declining CHB and rising TFP. The effects are big for the outliers. A novel test of structural gravity provides striking confirmation, validating both the CHB and TFP measures that rely on it here, and the large gravity literature that relies on it elsewhere.
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This paper was revised on December 5, 2011