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Goods Trade, Factor Mobility and Welfare

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  • Stephen J. Redding

Abstract

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.

Suggested Citation

  • Stephen J. Redding, 2012. "Goods Trade, Factor Mobility and Welfare," CEP Discussion Papers dp1140, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1140
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    More about this item

    Keywords

    International trade; factor mobility; welfare gains from trade;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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