GEP Seminar: Jingting Fan (Pennsylvania State University)

This is an online event 

 Title:  Trade and technology compatibility in general equilibrium

 Abstract:  We develop a model of endogenous production networks in which the horizontal proximity between a firm's own technology and the technology of its suppliers affects the input cost. Firms choose their technology balancing the benefit of moving in the technological space toward suppliers with the cost of moving away from the technology it knows the best. By altering the relative costs of suppliers from different countries, trade policies shape technology choices, which in turn affect trade patterns and welfare. We parameterize the model to match the relationship between technology proximity and trade patterns that we document using the patent data. We use the model to assess the role of international trade in shaping the global distribution of technology directions and the magnitude of trade costs arising from technology incompatibility. Finally, we examine the welfare cost of the trade conflict between the U.S. and China in the semiconductor industry. We find that an embargo on semiconductor exports to China leads to a divergence in the technologies of the two countries, amplifying the welfare costs for both.