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On the Heterogeneous Welfare Gains and Losses from Trade

Author

Listed:
  • Carroll, Daniel R.

    (Federal Reserve Bank of Cleveland)

  • Hur, Sewon

    (Federal Reserve Bank of Cleveland)

Abstract

How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income 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 57 percent larger than those in the highest wealth decile.

Suggested Citation

  • Carroll, Daniel R. & Hur, Sewon, 2019. "On the Heterogeneous Welfare Gains and Losses from Trade," Working Papers 190602, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:190602
    DOI: 10.26509/frbc-wp-201906r2
    Note: First version March 2019. Second version July 2019
    as

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    File URL: https://doi.org/10.26509/frbc-wp-201906r2
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    References listed on IDEAS

    as
    1. Carroll, Daniel R. & Dolmas, James & Young, Eric R., 2017. "The Politics of Flat Taxes," Working Papers 144201, Federal Reserve Bank of Cleveland.
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    Cited by:

    1. Jaravel, Xavier & Sager, Erick, 2019. "What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models," CEPR Discussion Papers 13902, C.E.P.R. Discussion Papers.
    2. 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.

    More about this item

    Keywords

    trade gains; inequality; 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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