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The social footprint of globalization: towards the introduction of strategic industries in quantitative trade models

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  • Colantone, Italo
  • Ottaviano, Gianmarco Ireo Paolo
  • Stanig, Piero

Abstract

We argue that our understanding of industrial policy in the presence of 'strategic' industries that exert positive externalities on the national economy may benefit from an extension of quantitative general equilibrium trade models making the extent and pattern of trade-induced re-allocations more salient. To make these features relevant for national welfare, we introduce the notion of the 'social footprint' of globalization as the result of suboptimal trade-induced structural transformation in the presence of externalities. For proof of concept, we use simple workhorse models featuring two countries and two industries (only one of which is 'strategic') to highlight the role of the 'scale elasticity' of the strategic industry and the consequences of the most common assumptions on market structure in quantitative trade analyses.

Suggested Citation

  • Colantone, Italo & Ottaviano, Gianmarco Ireo Paolo & Stanig, Piero, 2024. "The social footprint of globalization: towards the introduction of strategic industries in quantitative trade models," LSE Research Online Documents on Economics 126837, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126837
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    File URL: https://researchonline.lse.ac.uk/id/eprint/126837/
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    References listed on IDEAS

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    1. Dominick Bartelme & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2025. "The Textbook Case for Industrial Policy: Theory Meets Data," Journal of Political Economy, University of Chicago Press, vol. 133(5), pages 1527-1573.
    2. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.
    3. 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.
    4. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F00 - International Economics - - General - - - General

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