International Productivity Differences: A Nested Test of Increasing Returns to Scale Models

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The purpose of this project is to determine how international productivity differences and increasing returns to scale models can explain patterns of international trade. The first phase of the project involves developing a detailed database of the world trading environment that would contain data on bilateral trade flows, production by industry, resource endowments, and input-output relationships for 54 industries in 75 countries over the period 1963-1992. This is an ambitious data gathering exercise, but is fully implementable and will be made publicly available. The second phase of the project will identify models of trade that are most appropriate for the purpose of understanding the role of productivity and human capital for U.S. economic success. Without such information it is impossible to design informed public policy, be it pro-active or noninterventionist. By providing this information, the results of this research should aid policy-makers in building a stronger economy, both within the United States and globally.