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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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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
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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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  1. Ana CecĂ­lia Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, 07.
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  9. Samuel S. Kortum & Jonathan Eaton & Brent Neiman & John Romalis, 2010. "Trade and the Global Recession," DEGIT Conference Papers c015_002, DEGIT, Dynamics, Economic Growth, and International Trade.
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  11. Guy Michaels & Ferdinand Rauch & Stephen Redding, 2008. "Urbanisation and Structural Transformation," CEP Discussion Papers dp0892, Centre for Economic Performance, LSE.
  12. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
  13. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
  14. Ina Simonovska & Michael Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," Working Papers 112, University of California, Davis, Department of Economics.
  15. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  16. Jonathan Eaton & Samuel S. Kortum & Sebastian Sotelo, 2012. "International Trade: Linking Micro and Macro," NBER Working Papers 17864, National Bureau of Economic Research, Inc.
  17. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
  18. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
  19. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  20. Courant Paul N. & Deardorff Alan V., 1993. "Amenities, Nontraded Goods, and the Trade of Lumpy Countries," Journal of Urban Economics, Elsevier, vol. 34(2), pages 299-317, September.
  21. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
  22. Ralph Ossa, 2011. "Trade Wars and Trade Talks with Data," NBER Working Papers 17347, National Bureau of Economic Research, Inc.
  23. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 581-608.
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