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Globalization and individual gains from trade

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  • Behrens, Kristian
  • Murata, Yasusada

Abstract

We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. Although trade reduces markups in both countries in our framework, its impact on variety depends on their relative position in the world income distribution: product diversity in the lower income country always expands, while that in the higher income country may shrink. When the latter occurs, the richer consumers in the higher income country may lose from trade because the relative importance of variety versus quantity increases with income. Using data on GDP per capita and population, as well as on the U.S. income distribution, our theoretical results are illustrated in two different contexts: the hypothetical bilateral trade liberalization between the U.S. and 188 countries; and the historical sequence of U.S. free trade agreements since 1985.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): 8 ()
Pages: 703-720

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Handle: RePEc:eee:moneco:v:59:y:2012:i:8:p:703-720

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Web page: http://www.elsevier.com/locate/inca/505566

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Globalization and Individual Gains from Trade
    by Martin Berka in NEP-OPM blog on 2009-09-27 21:14:37
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Cited by:
  1. Robert C. Feenstra, 2014. "Restoring the Product Variety and Pro-competitive Gains from Trade with Heterogeneous Firms and Bounded Productivity," NBER Working Papers 19833, National Bureau of Economic Research, Inc.
  2. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2008. "Trade, Wages, and Productivity," IZA Discussion Papers 3682, Institute for the Study of Labor (IZA).
  3. Pokrovsky Dmitry & Behrens Kristian & Zhelobodko Evgeny, 2014. "Market Size, Entrepreneurship, and Income Inequality," EERC Working Paper Series 14/01e, EERC Research Network, Russia and CIS.
  4. Alexander Tarasov, 2014. "Preferences and income effects in monopolistic competition models," Social Choice and Welfare, Springer, vol. 42(3), pages 647-669, March.
  5. Foellmi, Reto & Hepenstrick, Christian & Zweimüller, Josef, 2010. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," CEPR Discussion Papers 7939, C.E.P.R. Discussion Papers.
  6. Kevin Wiseman, 2010. "Location, Productivity, and Trade," 2010 Meeting Papers 671, Society for Economic Dynamics.
  7. Kristian Behrens & Yasusada Murata, 2009. "Trade, Competition, and Efficiency," Cahiers de recherche 0940, CIRPEE.
  8. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2013. "Spatial Frictions," IZA Discussion Papers 7175, Institute for the Study of Labor (IZA).
  9. Kristian Behrens & Yasusada Murata, 2011. "Trade, Competition, and Efficiency (revised version)," Cahiers de recherche 1118, CIRPEE.

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