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On the Heterogeneous Welfare Gains and Losses from Trade

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  • Daniel R. Carroll
  • Sewon Hur

Abstract

How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods constitute a larger fraction of expenditures for poor households. Second, we build a trade model with nonhomothetic preferences?to generate the documented relationship between tradable expenditure shares, income, and wealth?and uninsurable earnings risk?to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 67 percent larger than those in the highest wealth decile.

Suggested Citation

  • Daniel R. Carroll & Sewon Hur, 2019. "On the Heterogeneous Welfare Gains and Losses from Trade," Working Papers 201906, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:190600
    DOI: 10.26509/frbc-wp-201906
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    File URL: https://doi.org/10.26509/frbc-wp-201906
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. On the Heterogeneous Welfare Gains and Losses from Trade
      by Christian Zimmermann in NEP-DGE blog on 2019-11-15 02:09:41

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    Cited by:

    1. Xavier Jaravel & Erick Sager, 2019. "What are the Price Effects of Trade? Evidence from the US and Implications for Quantitative Trade Models," CEP Discussion Papers dp1642, Centre for Economic Performance, LSE.
    2. Daniel R. Carroll & Sewon Hur, 2020. "On the Distributional Effects of International Tariffs," Working Papers 202018, Federal Reserve Bank of Cleveland.
    3. Jaravel, Xavier & Sager, Erick, 2019. "What are the price effects of trade? Evidence from the US for quantitative trade models," LSE Research Online Documents on Economics 103402, London School of Economics and Political Science, LSE Library.
    4. Handbury, Jessie, 2020. "Comment on “On the Heterogeneous Welfare Gains and Losses from Trade” by Daniel Carroll and Sewon Hur," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 17-19.

    More about this item

    Keywords

    inequality; trade gains; consumption;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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