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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

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    References listed on IDEAS

    as
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    Keywords

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    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

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