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Goods Trade, Factor Mobility and Welfare

Listed author(s):
  • 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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File URL: http://cep.lse.ac.uk/pubs/download/dp1140.pdf
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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
Handle: RePEc:cep:cepdps:dp1140
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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