Trade Imbalances and Productivity with Gravity : Measuring the Delocation E⁄Ect

I formulate a structural gravity model with monopolistic competition to measure the impact of manufacturing trade imbalances on aggregate measured productivity. Like in a Ricardian model la Dekle, Eaton and Kortum (2007), trade de cits lead to a bene cial terms-of-trade improvement, but this e⁄ect is quantitatively small relative to a detrimental delocation e⁄ect. As a consequence, trade de cits have a negative overall impact on aggregate measured productivity, and this may help to explain the strong negative correlation between changes in manufacturing trade de cits and in measured productivity that I observe in a sample of developing and emerging countries. My quantitative results suggest that a one percentage point increase in the manufacturing trade de cit to GDP ratio leads to a 0:2 percent reduction in aggregate measured productivity