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Additive versus multiplicative trade costs and the gains from trade

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  • Allen Sørensen

    ()
    (Department of Economics and Business, Aarhus University, Denmark)

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    Abstract

    This paper addresses welfare effects from trade liberalization in a heterogeneous-fi?rms trade model including the empirically important per-unit (i.e. additive) trade costs in addition to the conventional iceberg (i.e. multiplicative) and fi?xed trade costs. The novel contribution of the paper is the result that the welfare gain for a given increase in trade openness is higher for reductions in per-unit (additive) trade costs than for reductions in iceberg (multiplicative) trade costs. The ranking derives from differences in intra-industry reallocations and in particular from dissimilar impacts on the number of exporters (i.e., the extensive margin of trade).

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    File URL: ftp://ftp.econ.au.dk/afn/wp/12/wp12_07.pdf
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    Bibliographic Info

    Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2012-07.

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    Length: 12
    Date of creation: 21 Feb 2012
    Date of revision:
    Handle: RePEc:aah:aarhec:2012-07

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    Web page: http://www.econ.au.dk/afn/

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    Keywords: iceberg trade costs; per-unit;

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