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Globalization and Individual Gains from Trade

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Author Info

  • Kristian Behrens
  • Yasusada Murata

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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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0928.

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Date of creation: 2009
Date of revision:
Handle: RePEc:lvl:lacicr:0928

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

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References

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Citations

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. Reto Foellmi & Christian Hepenstrick & Josef Zweimüller, 2010. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," Diskussionsschriften dp1009, Universitaet Bern, Departement Volkswirtschaft.
  2. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2013. "Spatial Frictions," IZA Discussion Papers 7175, Institute for the Study of Labor (IZA).
  3. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2009. "Trade, Wages and Productivity," CEP Discussion Papers dp0942, Centre for Economic Performance, LSE.
  4. Kevin Wiseman, 2010. "Location, Productivity, and Trade," 2010 Meeting Papers 671, Society for Economic Dynamics.
  5. Alexander Tarasov, 2014. "Preferences and income effects in monopolistic competition models," Social Choice and Welfare, Springer, vol. 42(3), pages 647-669, March.
  6. 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.
  7. Kristian Behrens & Yasusada Murata, 2011. "Trade, Competition, and Efficiency (revised version)," Cahiers de recherche 1118, CIRPEE.
  8. Behrens, Kristian & Murata, Yasusada, 2012. "Trade, competition, and efficiency," Journal of International Economics, Elsevier, vol. 87(1), pages 1-17.

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