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Commodity Trade Matters

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  • Fally, Thibault
  • Sayre, James

Abstract

Primary commodities are used as inputs into all production processes, yet they account for approximately 16 percent of world trade. Despite their share in trade, we show that the aggregate gains from trade are largely understated if we ignore key features of commodities: low price elasticities of demand (difficulty in finding substitutes), low price elasticities of supply, and high dispersion of natural resources across countries. We develop a general-equilibrium model of consumption, production, and input-output linkages that explicitly accounts for these features. Our simulations confirm that the gains from trade are significantly larger, especially when considering large trade cost changes.

Suggested Citation

  • Fally, Thibault & Sayre, James, 2018. "Commodity Trade Matters," CEPR Discussion Papers 13132, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13132
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    Cited by:

    1. Paul Pelzl & Steven (S.) Poelhekke, 2018. "Good mine, bad mine: Natural resource heterogeneity and Dutch disease in Indonesia," Tinbergen Institute Discussion Papers 18-073/VIII, Tinbergen Institute.

    More about this item

    Keywords

    Gains from trade; Multi-stage Production; Primary commodities;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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