This paper explains the differential impacts of trade on countries in terms of institutional differences which result in factor market distortions. We modify the Ricardian, Specific Factor and Hecksher Ohlin models of trade to capture these. Trade has both terms of trade effects and output effects. Both work to raise welfare in an undistorted economy. In a distorted economy, price effects work to improve welfare, while output effects work to reduce it. Large distorted countries are more likely to lose from trade as beneficial price effects are lower. In addition the greater the substitutability between goods, the more likely it is that welfare rises through trade.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9086.
Length: Date of creation: Jul 2002 Date of revision: Handle: RePEc:nbr:nberwo:9086
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Find related papers by JEL classification: F16 - International Economics - - Trade - - - Trade and Labor Market Interactions O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Gérard Roland & Thierry Verdier, 1999.
"Transition and the output fall,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 7(1), pages 1-28, March.
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