IDEAS home Printed from https://ideas.repec.org/p/drx/wpaper/202528.html
   My bibliography  Save this paper

Do What You Know and Leave the Rest to the Experts: Quantifying the Gains from Efficient Trade

Author

Listed:
  • Mario Larch

    (University of Bayreuth)

  • Philipp Meinen

    (Deutsche Bundesbank)

  • Arne Nagengast

    (Deutsche Bundesbank)

  • Yoto Yotov

    (School of Economics, Drexel University)

Abstract

We develop and test a theory of efficient international trade. Efficiency gains arise through lower trade costs faced by "trade specialists", whose superiority over "common traders" manifests itself through lower trade costs. To test our theory, we construct and deploy a novel dataset based on firm-level merchanting data. Our estimates reveal that, on average, the trade costs for the "trade specialists" are about four times lower than for non-specialists. The corresponding welfare effects from globally efficient trade amount to a remarkable gain of 80%, on average, which sends an encouraging message for the potential gains from trade that are missing in the existing literature.

Suggested Citation

  • Mario Larch & Philipp Meinen & Arne Nagengast & Yoto Yotov, 2025. "Do What You Know and Leave the Rest to the Experts: Quantifying the Gains from Efficient Trade," Working Papers 202528, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    • Handle: RePEc:drx:wpaper:202528
    as

    Download full text from publisher

    File URL: https://www.lebow.drexel.edu/sites/default/files/2025-06/202528-cpga-gains-efficient-trade.pdf
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Head, Keith & Mayer, Thierry & Ries, John, 2010. "The erosion of colonial trade linkages after independence," Journal of International Economics, Elsevier, vol. 81(1), pages 1-14, May.
    2. Nicholas Bloom & John Van Reenen, 2010. "Why Do Management Practices Differ across Firms and Countries?," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 203-224, Winter.
    3. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    4. Sickles,Robin C. & Zelenyuk,Valentin, 2019. "Measurement of Productivity and Efficiency," Cambridge Books, Cambridge University Press, number 9781107036161, Enero-Abr.
    5. 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.
    6. Timothy J. Coelli & D.S. Prasada Rao & Christopher J. O’Donnell & George E. Battese, 2005. "An Introduction to Efficiency and Productivity Analysis," Springer Books, Springer, edition 0, number 978-0-387-25895-9, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2014. "Product Complexity, Quality of Institutions and the Protrade Effect of Immigrants," The World Economy, Wiley Blackwell, vol. 37(1), pages 63-85, January.
    2. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas.
    3. Frensch, Richard & Fidrmuc, Jarko & Rindler, Michael, 2023. "Topography, borders, and trade across Europe," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 816-832.
    4. Chen, Cheng & Senga, Tatsuro & Sun, Chang & Zhang, Hongyong, 2023. "Uncertainty, imperfect information, and expectation formation over the firm’s life cycle," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 60-77.
    5. Lo Turco, Alessia & Maggioni, Daniela, 2018. "Effects of Islamic religiosity on bilateral trust in trade: The case of Turkish exports," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 947-965.
    6. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    7. Festus Ebo Turkson, 2012. "Trade Agreements and Bilateral Trade in Sub-Saharan Africa: Estimating the Trade Effects of the EU-ACP PTA and RTAs," Discussion Papers 12/07, University of Nottingham, CREDIT.
    8. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2018. "Reciprocal vs nonreciprocal trade agreements: which have been best to promote exports?," Working Papers 1802, Department of Applied Economics II, Universidad de Valencia.
    9. Kox, Henk L.M. & Rojas Romasgosa, Hugo, 2019. "Gravity estimations with FDI bilateral data: Potential FDI effects of deep preferential trade agreements," MPRA Paper 96318, University Library of Munich, Germany.
    10. Beniamino Quintieri & Giovanni Stamato, 2023. "Are preferential agreements beneficial to EU trade? New evidence from the EU–South Korea treaty," The World Economy, Wiley Blackwell, vol. 46(12), pages 3511-3541, December.
    11. Marie M Stack & Rob Ackrill & Martin Bliss, 2019. "Sugar trade and the role of historical colonial linkages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(1), pages 79-108.
    12. Anirudh Shingal & Malte Ehrich, 2019. "Trade effects of standards harmonization in the EU: improved access for non-EU partners," Indian Council for Research on International Economic Relations (ICRIER) Working Paper 372, Indian Council for Research on International Economic Relations (ICRIER), New Delhi, India.
    13. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    14. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    15. Anders Akerman & Rikard Forslid, 2009. "Firm Heterogeneity and Country Size Dependent Market Entry Costs," Global COE Hi-Stat Discussion Paper Series gd09-056, Institute of Economic Research, Hitotsubashi University.
    16. Christian Elleby & Wusheng Yu & Qian Yu, 2018. "The Chinese Export Displacement Effect Revisited," IFRO Working Paper 2018/02, University of Copenhagen, Department of Food and Resource Economics.
    17. Nguyen, Bao Hoang & Simar, Léopold & Zelenyuk, Valentin, 2022. "Data sharpening for improving central limit theorem approximations for data envelopment analysis–type efficiency estimators," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1469-1480.
    18. Sgrignoli, Paolo & Metulini, Rodolfo & Schiavo, Stefano & Riccaboni, Massimo, 2015. "The relation between global migration and trade networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 417(C), pages 245-260.
    19. Jin, Jiashun & Ke, Zheng Tracy & Luo, Shengming, 2024. "Mixed membership estimation for social networks," Journal of Econometrics, Elsevier, vol. 239(2).
    20. Michel Beine & Pauline Bourgeon & Jean‐Charles Bricongne, 2019. "Aggregate Fluctuations and International Migration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 117-152, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:drx:wpaper:202528. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yoto V. Yotov (email available below). General contact details of provider: https://edirc.repec.org/data/cgdreus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.