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Decomposing the welfare gains from trade

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  • Bertoletti, Paolo
  • Etro, Federico

Abstract

The textbook of International Economics by Krugman, Obstfeld and Melitz (2022) introduces the gains from trade under monopolistic competition with a simple linear demand model. We use its representative consumer foundation to decompose the welfare gains from a market expansion into competitive effects, variety effects and selection effects

Suggested Citation

  • Bertoletti, Paolo & Etro, Federico, 2025. "Decomposing the welfare gains from trade," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000266
    DOI: 10.1016/j.econlet.2025.112189
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    1. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    2. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    4. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    More about this item

    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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