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Trade and Welfare: Does Industrial Organization Matter?

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Many contemporary theoretic studies of trade over geography reduce to an ex- amination of constant-elasticity reactions to changes in iceberg trade costs. These impacts are readily analyzed in simple constant-returns models based on the Arm- ington (1969) assumption of regionally differentiated goods. Following the line of reasoning suggested by Arkolakis et al. (2008) one can reach the surprising conclu- sion that industrial organization does not matter. In the present paper, we show that this finding is fragile, and with a minor elaboration of their model, the rich industrial-organization features of the popular Melitz (2003) model do, in fact, gen- erate important differences for trade and welfare.

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  • Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2009. "Trade and Welfare: Does Industrial Organization Matter?," CER-ETH Economics working paper series 09/119, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:09-119
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    More about this item

    Keywords

    Variety effects; Heterogeneous firms; Gains from trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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