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Gains From Trade With Variable Trade Elasticities

Author

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  • Wyatt J. Brooks
  • Pau S. Pujolas

Abstract

We measure gains from trade in multisector economies with nonhomothetic preferences where changes in trade costs generate reallocation of expenditure across sectors. We show how to measure the trade elasticity and how it relates to welfare. In this environment, the trade elasticity now varies both across countries and with levels of trade costs. In an application, we find that the trade elasticity varies substantially across countries and that the gains from moving from autarky to observed trade are on average between 24% and 28% greater than in a model where the trade elasticity is constant.

Suggested Citation

  • Wyatt J. Brooks & Pau S. Pujolas, 2019. "Gains From Trade With Variable Trade Elasticities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1619-1646, November.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:4:p:1619-1646
    DOI: 10.1111/iere.12399
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    Cited by:

    1. Wen-Tai Hsu & Raymond G. Riezman & Ping Wang, 2019. "Innovation, Growth, and Dynamic Gains from Trade," NBER Working Papers 26470, National Bureau of Economic Research, Inc.
    2. Pedro Cavalcanti Ferreira & Alberto Trejos, 2022. "Trade and the propagation of global shocks," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1663-1680, October.

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