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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. James E. Rauch, 1990. "Comparative Advantage, Geographic Advantage, and the Volume of Trade," NBER Working Papers 3512, National Bureau of Economic Research, Inc.
  2. Ina Simonovska & Michael E. Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," CESifo Working Paper Series 3356, CESifo Group Munich.
  3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  4. Guy Michaels & Ferdinand Rauch & Stephen J. Redding, 2012. "Urbanization and Structural Transformation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 535-586.
  5. Stephen Redding & Daniel M. Sturm, 2005. "The costs of remoteness: evidence from German division and reunification," LSE Research Online Documents on Economics 51613, London School of Economics and Political Science, LSE Library.
  6. Sam Kortum & John Romalis & Brent Neiman & Jonathan Eaton, 2010. "Trade and the Global Recession," 2010 Meeting Papers 1340, Society for Economic Dynamics.
  7. Courant, Paul N & Deardorff, Alan V, 1992. "International Trade with Lumpy Countries," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 198-210, February.
  8. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, 07.
  9. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  10. 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.
  11. Donald R. Davis & David E. Weinstein, 2002. "Bones, Bombs, and Break Points: The Geography of Economic Activity," American Economic Review, American Economic Association, vol. 92(5), pages 1269-1289, December.
  12. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  13. Gordon H. Hanson, 1994. "Localization Economies, Vertical Organization and Trade," NBER Working Papers 4744, National Bureau of Economic Research, Inc.
  14. 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.
  15. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  16. 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.
  17. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  18. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  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. Ralph Ossa, 2011. "Trade Wars and Trade Talks with Data," NBER Working Papers 17347, National Bureau of Economic Research, Inc.
  22. Simonovska, Ina; Waugh, Michael E., 2010. "The Elasticity of Trade: Estimates & Evidence," CAGE Online Working Paper Series 13, Competitive Advantage in the Global Economy (CAGE).
  23. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2010. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," NBER Working Papers 16262, National Bureau of Economic Research, Inc.
  24. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
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