We model the world economy as one system of endogenous input-output relationships subject to distortions and study how the world’s input-output structure and world’s GDP change due to changes in distortions. We derive a sufficient statistic to identify distortions from the observed world input-output matrix, which we fully match for the year 2011. Our main empirical result is to determine how changes in internal distortions (affecting transactions across sectors within countries) impact the whole structure of the world’s economy and show that they have a much larger effect on world’s GDP than external distortions (affecting transactions across countries).

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