Hi everyone. This was the conversation with Richard Hanania I did today. I don’t very much care for podcasts (at least, not for listening to them), so I will summarize what I think was important in the conversation.
Management is an extremely important determinant of productivity, and it is much worse in the developing world. This is arguably due to lack of competition, although I will note here the possibility of lower human capital attainment lowering TFP as well. This second point reminds me of Chang-Tai Hsieh’s arguments about Singapore: where total factor productivity seemed not to increase, but a closer examination of the evidence showed that the marginal profitability of capital simply wasn’t falling.
The gains from trade are likely much larger than you would naively think. Low-ball estimates of the gains from trade (think papers by Arnaud Costinot, with co-authors) make very strong assumptions about the form of the economy, in particular a constant-elasticity-of-substitution in production, and an unbounded Pareto distribution of firms. These are perfectly defensible, insofar as we often do not observe the counterfactual level of trade barriers and when we extrapolate we have to have some defensible way of thinking about this, but any deviation from this will tend to increase the gains from trade. So, this is a lower bound.
I did not expect for the response to my work the magnitude and duration which it has already attained. I had hoped for a result less fundamental and astounding.
I stand by what I said earlier. It really is all true. However, we are not there, and I hope we are never there yet. I do not wish to make my soul ugly, so I will stay away from it. If you come for politics you will be disappointed! For I shall touch on it only insofar as policy can be examined through the lense of economics.
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