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Capital accumulation and dynamic gains from trade

Author

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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Joseph Steinberg, 2018. "The Macroeconomic Impact of NAFTA Termination," 2018 Meeting Papers 753, Society for Economic Dynamics.
    2. repec:kap:jecgro:v:24:y:2019:i:2:d:10.1007_s10887-019-09164-4 is not listed on IDEAS
    3. 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.
    4. George Alessandria & Horag Choi & Kim Ruhl, 2014. "Trade Adjustment Dynamics and the Welfare Gains from Trade," NBER Working Papers 20663, National Bureau of Economic Research, Inc.
    5. repec:fip:fedles:00097 is not listed on IDEAS
    6. Sposi, Michael J., 2017. "Demographics and the Evolution of Global Imbalances," Globalization Institute Working Papers 332, Federal Reserve Bank of Dallas, revised 15 Apr 2019.
    7. 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.
    8. Michael Sposi & Ana Maria Santacreu, 2017. "Trade Liberalization Versus Protectionism: Are the Dynamic Welfare Implications Symmetric?," 2017 Meeting Papers 1617, Society for Economic Dynamics.
    9. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    10. repec:eee:moneco:v:91:y:2017:i:c:p:1-18 is not listed on IDEAS

    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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