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Gains from trade liberalization with flexible extensive margin adjustment

Author

Listed:
  • Hsieh, Chang-Tai
  • Li, Nicholas
  • Ossa, Ralph
  • Yang, Mu-Jeung

Abstract

We propose a sufficient statistic to measure the ex-post welfare gains from trade in CES models featuring any productivity distribution and any pattern of selection into production and exporting. This statistic is based on a single data moment, the change in the market share of continuing domestic producers, and a single structural parameter, the elasticity of substitution between products. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement using data on observed firm selection. We find that welfare gains can substantially deviate from welfare estimates implied by formulas that assume a constant extensive margin trade elasticity.

Suggested Citation

  • Hsieh, Chang-Tai & Li, Nicholas & Ossa, Ralph & Yang, Mu-Jeung, 2023. "Gains from trade liberalization with flexible extensive margin adjustment," Journal of International Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:inecon:v:142:y:2023:i:c:s0022199623000429
    DOI: 10.1016/j.jinteco.2023.103756
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    References listed on IDEAS

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