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Trade barriers and the relative price of tradables

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  • Sposi, Michael

Abstract

In this paper I quantitatively address the role of trade barriers in explaining why prices of services relative to tradables are positively correlated with levels of development across countries. I argue that trade barriers play a crucial role in shaping the cross-country pattern of specialization across many tradable goods. I construct a multi-country, general equilibrium model of trade and derive tractable predictions that show how specialization affects relative prices. I calibrate the model to match the patterns of prices, levels of development, and bilateral trade across 103 countries. Through counterfactuals I find that removing trade barriers eliminates more than half of the gap in the relative price of services between rich and poor countries with only a minimal systematic effect on the absolute price of tradables.

Suggested Citation

  • Sposi, Michael, 2015. "Trade barriers and the relative price of tradables," Journal of International Economics, Elsevier, vol. 96(2), pages 398-411.
  • Handle: RePEc:eee:inecon:v:96:y:2015:i:2:p:398-411
    DOI: 10.1016/j.jinteco.2015.02.003
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    Cited by:

    1. Michael Sposi & B Ravikumar & Piyusha Mutreja, 2014. "Capital goods trade and economic development," 2014 Meeting Papers 1374, Society for Economic Dynamics.
    2. Weicheng Lian & Natalija Novta & Evgenia Pugacheva & Yannick Timmer & Petia Topalova, 2020. "The Price of Capital Goods: A Driver of Investment Under Threat," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 509-549, September.
    3. Weicheng Lian & Natalija Novta & Evgenia Pugacheva & Yannick Timmer & Petia Topalova, 0. "The Price of Capital Goods: A Driver of Investment Under Threat," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-41.
    4. Piyusha Mutreja & Michael Sposi & B. Ravikumar, 2018. "Capital Goods Trade, Relative Prices and Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 101-122, January.
    5. Mario J. Crucini & Christopher I. Telmer, 2012. "Microeconomic Sources of Real Exchange Rate Variability," NBER Working Papers 17978, National Bureau of Economic Research, Inc.
    6. Michael Sposi, 2015. "Navigating the Structure of the Global Economy," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 10-17.
    7. Lashkaripour, Ahmad, 2020. "Discrete trade," Journal of International Economics, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Relative prices; Tradables; Nontradables; Trade barriers;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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