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The impact of trade on growth and welfare with heterogeneous firms and rent-sharing

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  • Nishiyama, Hiroyuki
  • Gintani, Yasuhiro
  • Tsuboi, Mizuki

Abstract

Can trade liberalization jointly lead to an increase in per capita GDP and higher welfare? To answer this question, we develop a tractable dynamic trade model with heterogeneous firms and rent-sharing. Analytically decomposing the impact of trade liberalization on per capita GDP and welfare into three or four forces, we first show that trade liberalization may lead to a decline in per capita GDP and deteriorate welfare. Our simulation then demonstrates that when rent-sharing effects are strong, a response of welfare to trade liberalization can be U-shaped or inverted U-shaped; giving a possible answer NO to our research question.

Suggested Citation

  • Nishiyama, Hiroyuki & Gintani, Yasuhiro & Tsuboi, Mizuki, 2024. "The impact of trade on growth and welfare with heterogeneous firms and rent-sharing," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 731-742.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:731-742
    DOI: 10.1016/j.iref.2023.10.023
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    More about this item

    Keywords

    Firm heterogeneity; Growth; Welfare; Rent-sharing; Trade liberalization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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