Missing Gains from Trade?
AbstractIn a class of trade models which satisfy a constant elasticity gravity equation, the welfare gains from trade can be computed using the open economy domestic trade share and a constant trade elasticity. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 104 (2014)
Issue (Month): 5 (May)
Other versions of this item:
- Marc J. Melitz & Stephen J. Redding, 2014. "Missing Gains from Trade?," NBER Working Papers 19810, National Bureau of Economic Research, Inc.
- Melitz, Marc J & Redding, Stephen J., 2014. "Missing Gains from Trade?," CEPR Discussion Papers 9821, C.E.P.R. Discussion Papers.
- Marc J. Melitz & Stephen J Redding, . "Missing Gains from Trade?," Working Paper 144566, Harvard University OpenScholar.
- Marc J. Melitz & Stephen J. Redding, 2014. "Missing Gains from Trade?," CEP Discussion Papers dp1254, Centre for Economic Performance, LSE.
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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