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Goods Trade, Factor Mobility and Welfare

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  • Stephen J. Redding

Abstract

This paper extends a recent class of quantitative models of international trade to incorporate factor mobility within countries. We present a model-based decomposition of the variance of economic activity into the contributions of locational fundamentals, market access and their covariance. We show how the standard framework for undertaking model-based counterfactuals in trade can be augmented to obtain predictions for endogenous changes in the distribution of economic activity across regions within countries. A region's trade share with itself is no longer a sufficient statistic for the welfare gains from trade, which also depend on endogenous changes in the distribution of mobile factors.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1140.

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Date of creation: Apr 2012
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Handle: RePEc:cep:cepdps:dp1140

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: International trade; factor mobility; welfare gains from trade;

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References

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  1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
  2. Michaels, Guy & Rauch, Ferdinand & Redding, Stephen J, 2008. "Urbanization and Structural Transformation," CEPR Discussion Papers 7016, C.E.P.R. Discussion Papers.
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  9. Stephen Redding & Daniel Sturm, 2006. "The Costs of Remoteness: Evidence from German Division and Reunification," 2006 Meeting Papers 283, Society for Economic Dynamics.
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  11. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
  12. Ralph Ossa, 2011. "Trade Wars and Trade Talks with Data," NBER Working Papers 17347, National Bureau of Economic Research, Inc.
  13. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  14. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
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  17. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  18. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  19. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sectoral Level," IEHAS Discussion Papers 0803, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  20. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
  21. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2010. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," NBER Working Papers 16262, National Bureau of Economic Research, Inc.
  22. repec:cge:warwcg:13 is not listed on IDEAS
  23. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
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Citations

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Cited by:
  1. Holger Breinlich & Gianmarco I.P. Ottaviano & Jonathan R.W. Temple, 2013. "Regional growth and regional decline," Economics Discussion Papers 729, University of Essex, Department of Economics.
  2. repec:clg:wpaper:2013-28 is not listed on IDEAS
  3. Stephen J. Redding & Matthew A. Turner, 2014. "Transportation Costs and the Spatial Organization of Economic Activity," NBER Working Papers 20235, National Bureau of Economic Research, Inc.
  4. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence From Argentina," CEP Discussion Papers dp1273, Centre for Economic Performance, LSE.
  5. Natalia Ramondo & Andrés Rodríguez-Clare & Milagro Saborío-Rodríguez, 2012. "Scale Effects and Productivity Across Countries: Does Country Size Matter?," NBER Working Papers 18532, National Bureau of Economic Research, Inc.
  6. A. Kerem Coşar & Pablo D. Fajgelbaum, 2013. "Internal Geography, International Trade, and Regional Specialization," NBER Working Papers 19697, National Bureau of Economic Research, Inc.
  7. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence from Argentina 1870-1914," NBER Working Papers 20217, National Bureau of Economic Research, Inc.

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