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Capital accumulation and dynamic gains from trade

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  • Ravikumar, B.
  • Santacreu, Ana Maria
  • Sposi, Michael

Abstract

We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation and trade imbalances. We develop a gradient-free method to compute the exact transition paths following a trade liberalization. We find that (i) larger countries accumulate a current account surplus, and financial resources flow from larger countries to smaller countries, boosting consumption in the latter, (ii) countries with larger short-run trade deficits accumulate capital faster, (iii) the gains are nonlinear in the reduction in trade costs, and (iv) capital accumulation accounts for substantial gains. The net foreign asset position before the liberalization is positively correlated with the gains. The tradables intensity in consumption goods production determines the static gains, and the tradables intensity in investment goods production determines the dynamic gains that include capital accumulation.

Suggested Citation

  • Ravikumar, B. & Santacreu, Ana Maria & Sposi, Michael, 2019. "Capital accumulation and dynamic gains from trade," Journal of International Economics, Elsevier, vol. 119(C), pages 93-110.
  • Handle: RePEc:eee:inecon:v:119:y:2019:i:c:p:93-110
    DOI: 10.1016/j.jinteco.2019.04.009
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Capital Accumulation and Dynamic Gains from Trade
      by Christian Zimmermann in NEP-DGE blog on 2017-03-15 00:58:12

    Citations

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    Cited by:

    1. Robert Zymek, 2018. "Bilateral Trade Imbalances," 2018 Meeting Papers 1117, Society for Economic Dynamics.
    2. Joseph B. Steinberg, 2020. "The macroeconomic impact of NAFTA termination," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 821-865, May.
    3. George Alessandria & Horag Choi & Kim Ruhl, 2014. "Trade Adjustment Dynamics and the Welfare Gains from Trade," Working Papers 14-11, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. David Kohn & Fernando Leibovici & Michal Szkup, 2019. "Financial Development and Trade Liberalization," 2019 Meeting Papers 1212, Society for Economic Dynamics.
    5. Michael J. Sposi, 2017. "Demographics and the Evolution of Global Imbalances," Globalization Institute Working Papers 332, Federal Reserve Bank of Dallas, revised 15 Apr 2019.
    6. Guzmán Ourens, 0. "The long-term impact of trade with firm heterogeneity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 0, pages 1-33.
    7. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    8. Horag Choi & George Alessandria, 2015. "The Dynamics of the Trade Balance and the Real Exchange Rate: The J Curve and Trade Costs?," 2015 Meeting Papers 1413, Society for Economic Dynamics.
    9. Yang, Han, 2020. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 99976, University Library of Munich, Germany.
    10. Sergi Basco & Martí Mestieri, 2019. "The world income distribution: the effects of international unbundling of production," Journal of Economic Growth, Springer, vol. 24(2), pages 189-221, June.
    11. Jonas C. Crews & Fernando Leibovici, 2018. "Trade Adjusts Gradually After Trade Liberalization," Economic Synopses, Federal Reserve Bank of St. Louis, issue 1, pages 1-2.
    12. Alvarez, Fernando, 2017. "Capital accumulation and international trade," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 1-18.
    13. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 0. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-53.
    14. Lixin Tang, . "Entrepreneur Income Inequality, Aggregate Saving and the Gains from Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    15. Yang, Han, 2019. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 96054, University Library of Munich, Germany.
    16. Wyatt J. Brooks & Pau S. Pujolas, 2018. "Capital accumulation and the welfare gains from trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 491-523, August.
    17. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 2020. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 456-508, September.
    18. Michael Sposi & Ana Maria Santacreu, 2017. "Trade Liberalization Versus Protectionism: Are the Dynamic Welfare Implications Symmetric?," 2017 Meeting Papers 1617, Society for Economic Dynamics.

    More about this item

    Keywords

    Welfare gains; Dynamics; Capital accumulation; Trade imbalances;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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