Authors: Chang-Tai Hsieh, Peter J. Klenow, and Kazuatsu Shimizu

Previously published on June 2022

Abstract: How much trade and growth comes from distinct varieties (Romer) versus quality differences (Ricardo)? How important is new variety creation versus
creative destruction for productivity differences and growth? How much growth comes from innovation at home versus abroad? We write down a multi-country model of trade and growth featuring these forces and draw out testable implications for the behavior of export and import growth rates across product categories. We infer that Ricardian and Romerian forces are both important for trade and growth. But the U.S. innovates mostly by creating new varieties and improving its own products, whereas developing countries such as China grow mostly by creatively destroying the products of rich countries. For small countries the vast majority of growth comes from innovation abroad.

Read the paper: Romer or Ricardo?

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