TFP growth, embeddedness, and Covid-19: a novel production model that allows estimating trade elasticities

The main contribution of this paper is the proposal of a new method to estimate trade elasticities based on a production model where trade elasticities and technological parameters are estimated simultaneously. Our empirical model, inspired by the theoretical framework introduced by Caliendo et al (2018) to study the propagation of productivity shocks, also permits assessing whether their central equation aimed at understanding the sources of productivity change, is supported by the data. Furthermore, using econometric techniques, our paper examines trade-related productivity effects that have rarely been examined in the literature on productivity growth decomposition. The proposed model provides a common analytical framework for an empirical examination of several issues that both traditionally and more recently have attracted the interest of many academics and policy/makers, namely TFP growth, embeddedness, and Covid-19. We use the World Input-Output Database (WIOD) for the period 2000-2014 to compute most of the relevant variables employed in these applications.