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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. We show that, although trade reduces markups in both countries, 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. We illustrate this effect using data on GDP per capita and population for 186 countries, as well as parameter estimates for domestic income distributions. Our results suggest that U.S. trade with countries of similar GDP per capita makes all agents in both countries better off, whereas trade with countries having lower GDP per capita may adversely affect up to 11% of the U.S. population.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7448.

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Date of creation: Sep 2009
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Handle: RePEc:cpr:ceprdp:7448

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Keywords: general equilibrium; income heterogeneity; monopolistic competition; pro-competitive effects; product diversity;

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References

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Blog mentions

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
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Südekum, Jens, 2011. "Spatial frictions," CEPR Discussion Papers 8572, C.E.P.R. Discussion Papers.
  2. 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.
  3. Kristian Behrens & Yasusada Murata, 2011. "Trade, Competition, and Efficiency (revised version)," Cahiers de recherche 1118, CIRPEE.
  4. 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.
  5. Kevin Wiseman, 2010. "Location, Productivity, and Trade," 2010 Meeting Papers 671, Society for Economic Dynamics.
  6. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2009. "Trade, wages and productivity," LSE Research Online Documents on Economics 28609, London School of Economics and Political Science, LSE Library.
  7. Alexander Tarasov, 2014. "Preferences and income effects in monopolistic competition models," Social Choice and Welfare, Springer, vol. 42(3), pages 647-669, March.
  8. Kristian Behrens & Yasusada Murata, 2009. "Trade, Competition, and Efficiency," Cahiers de recherche 0940, CIRPEE.

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