TY  - JOUR
AU  - Ramondo,Natalia
AU  - Rodríguez-Clare,Andrés
AU  - Saborío-Rodríguez,Milagro
TI  - Scale Effects and Productivity Across Countries: Does Country Size Matter?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18532
PY  - 2012
Y2  - November 2012
UR  - http://www.nber.org/papers/w18532
L1  - http://www.nber.org/papers/w18532.pdf
N1  - Author contact info:
Natalia Ramondo
Arizona State University
Department of Economics
POB 879801
Tempe, AZ  85287-9801
Tel: 480-965-0215
E-Mail: Natalia.Ramondo@asu.edu

Andres Rodriguez-Clare
University of California at Berkeley
Department of Economics
Berkeley, CA 94720-3880
E-Mail: andres1000@gmail.com

Milagro Saborio-Rodriguez
Department of Agricultural Economics
and Rural Sociology
Pennsylvania State University
308 Armsby Building
University Park, PA 16801
E-Mail: mxs837@psu.edu
AB  - Models in which growth is driven by innovation naturally lead to scale effects. These scale effects result in the counterfactual prediction that larger countries should be much richer than smaller ones. We explore and quantify two candidates to solve the puzzle: First, countries are not fully isolated from each other; and second, countries are not fully integrated domestically. To such end, we build a quantitative model of trade and multinational production (MP) with frictions to move goods and ideas not only across, but also within countries. The calibrated model goes a long way to resolve the puzzle. The existence of domestic frictions, rather than openness to trade and MP, is what allows the extended model to come close to matching the data.
ER  -