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Goods Trade, Factor Mobility and Welfare

  • Stephen J. Redding

This paper extends a recent class of quantitative models of international trade to incorporate factor mobility within countries. We present a model-based decomposition of the variance of economic activity into the contributions of locational fundamentals, market access and their covariance. We show how the standard framework for undertaking model-based counterfactuals in trade can be augmented to obtain predictions for endogenous changes in the distribution of economic activity across regions within countries. A region's trade share with itself is no longer a sufficient statistic for the welfare gains from trade, which also depend on endogenous changes in the distribution of mobile factors.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1140.

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Date of creation: Apr 2012
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Handle: RePEc:cep:cepdps:dp1140
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  19. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
  20. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
  21. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
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  23. Guy Michaels & Ferdinand Rauch & Stephen Redding, 2008. "Urbanisation and Structural Transformation," CEP Discussion Papers dp0892, Centre for Economic Performance, LSE.
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