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Capital Accumulation and Dynamic Gains from Trade

Author

Listed:
  • Ravikumar, B.

    (Federal Reserve Bank of St. Louis)

  • Santacreu, Ana Maria

    (Federal Reserve Bank of St. Louis)

  • Sposi, Michael J.

    () (Federal Reserve Bank of Dallas)

Abstract

We compute welfare gains from trade in a dynamic, multi-country Ricardian model where international trade affects capital accumulation. We calibrate the model for 93 countries and examine transition paths between steady-states after a permanent, uniform trade liberalization across countries. Our model allows for both the relative price of investment and the investment rate to depend on the world distribution of trade barriers. Accounting for transitional dynamics, welfare gains are about 60 percent of those measured by comparing only the steady-states, and three times larger than those with no capital accumulation. We extend the model to incorporate adjustment costs to capital accumulation and endogenous trade imbalances. Relative to the model with balanced trade, the gains from trade increase more for small countries because they accumulate capital at faster rates by running trade deficits in the short run.

Suggested Citation

  • Ravikumar, B. & Santacreu, Ana Maria & Sposi, Michael J., 2017. "Capital Accumulation and Dynamic Gains from Trade," Globalization and Monetary Policy Institute Working Paper 296, Federal Reserve Bank of Dallas, revised 01 Mar 2018.
    • Handle: RePEc:fip:feddgw:296
    DOI: 10.24149/gwp296r1
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    References listed on IDEAS

    as
    1. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," CESifo Working Paper Series 5446, CESifo Group Munich.
    2. George Alessandria & Horag Choi & Kim Ruhl, 2014. "Trade Adjustment Dynamics and the Welfare Gains from Trade," NBER Working Papers 20663, National Bureau of Economic Research, Inc.
    3. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2013. "Ricardian selection," Journal of International Economics, Elsevier, vol. 89(1), pages 96-109.
    4. Michael Sposi & B Ravikumar & Piyusha Mutreja, 2014. "Capital goods trade and economic development," 2014 Meeting Papers 1374, Society for Economic Dynamics.
    5. Wyatt J. Brooks & Pau S. Pujolas, 2016. "Captial Accumulation and the Welfare Gains from Trade," Department of Economics Working Papers 2016-03, McMaster University, revised Jul 2017.
    6. repec:red:issued:17-216 is not listed on IDEAS
    7. Desmet, Klaus & Nagy, David Krisztián & Rossi-Hansberg, Esteban, 2015. "The Geography of Development: Evaluating Migration Restrictions and Coastal Flooding," CEPR Discussion Papers 10544, C.E.P.R. Discussion Papers.
    8. Caliendo, Lorenzo & Dvorkin, Maximiliano & Parro, Fernando, 2015. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Working Papers 2015-9, Federal Reserve Bank of St. Louis, revised 25 Jul 2017.
    9. repec:ucp:jpolec:doi:10.1086/696279 is not listed on IDEAS
    10. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    11. Timothy J. Kehoe & Kim J. Ruhl & Joseph B. Steinberg, 2018. "Global Imbalances and Structural Change in the United States," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 761-796.
    12. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
    13. Piyusha Mutreja & Michael Sposi & B. Ravikumar, 2018. "Capital Goods Trade, Relative Prices and Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 101-122, January.
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    Citations

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    Cited by:

    1. Michael Sposi & Ana Maria Santacreu, 2017. "Trade Liberalization Versus Protectionism: Are the Dynamic Welfare Implications Symmetric?," 2017 Meeting Papers 1617, Society for Economic Dynamics.
    2. repec:fip:fedles:00097 is not listed on IDEAS
    3. Sposi, Michael J., 2017. "Demographics and the Evolution of Global Imbalances," Globalization and Monetary Policy Institute Working Paper 332, Federal Reserve Bank of Dallas.
    4. repec:eee:moneco:v:91:y:2017:i:c:p:1-18 is not listed on IDEAS

    More about this item

    Keywords

    Welfare gains; dynamics; capital accumulation; trade imbalances;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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