EatonKortum

EatonKortum refers to the Eaton–Kortum model, an influential framework in international trade theory developed by Robert G. Eaton and Samuel Kortum in the late 1990s. The model provides a micro-founded explanation for observed patterns of trade by combining product-level technology with a stochastic distribution of productivity across a continuum of tradable goods and countries. In its standard form, the world consists of a large number of goods and a set of countries, each with a random productivity parameter for every good drawn from a Fréchet distribution. Trade costs determine whether a good produced abroad is cheaper than domestic production; consumers have a CES preferences over goods, so markets clear when supply equals demand.

Equilibrium trade shares emerge endogenously, and the model yields a gravity-like relation: larger economies and lower trade costs produce disproportionately larger shares of trade. One notable feature is that, under the usual distributional assumptions, the model can reproduce broad qualitative facts of world trade, including wide cross-country variation in export baskets and the dependence of trade patterns on technology and geography.

Applications include evaluating the welfare and distributional effects of technology differences, tariffs, and trade liberalization, as well as guiding calibration and counterfactual analyses in macro-trade models. The framework has served as a baseline for many extensions, incorporating aspects such as multiple sectors, imperfect competition, and learning or investment in productivity.

In the literature, Eaton and Kortum's approach is typically cited as a cornerstone of the quantitative trade literature. The term EatonKortum may be used as a shorthand for the model itself, and is occasionally referenced in discussions of stochastic or distribution-based approaches to trade.