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Capital Accumulation and Dynamic Gains from Trade

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  • B. Ravikumar
  • Ana Maria Santacreu
  • Michael J. Sposi

Abstract

We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation. We examine transition paths for 93 countries following a permanent, uniform, unanticipated trade liberalization. Both the relative price of investment and the investment rate respond to changes in trade frictions. Relative to a static model, the dynamic welfare gains in a model with balanced trade are three times as large. The gains including transition are 60 percent of those computed by comparing only steady states. Trade imbalances have negligible effects on the cross-country distribution of dynamic gains. However, relative to the balanced-trade model, small, less-developed countries accrue the gains faster in a model with trade imbalances by running trade deficits in the short run but have lower consumption in the long-run. In both models, most of the dynamic gains are driven by capital accumulation.

Suggested Citation

  • B. Ravikumar & Ana Maria Santacreu & Michael J. Sposi, 2017. "Capital Accumulation and Dynamic Gains from Trade," Working Papers 2017-5, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2017-005
    DOI: 10.20955/wp.2017.005
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Capital Accumulation and Dynamic Gains from Trade
      by Christian Zimmermann in NEP-DGE blog on 2017-03-15 00:58:12

    Citations

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    Cited by:

    1. Robert Zymek, 2018. "Bilateral Trade Imbalances," 2018 Meeting Papers 1117, Society for Economic Dynamics.
    2. Joseph Steinberg, 2018. "The Macroeconomic Impact of NAFTA Termination," 2018 Meeting Papers 753, Society for Economic Dynamics.
    3. Sergi Basco & Martí Mestieri, 2019. "The world income distribution: the effects of international unbundling of production," Journal of Economic Growth, Springer, vol. 24(2), pages 189-221, June.
    4. Lixin Tang, . "Entrepreneur Income Inequality, Aggregate Saving and the Gains from Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    5. 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.
    6. David Kohn & Fernando Leibovici & Michal Szkup, 2019. "Financial Development and Trade Liberalization," 2019 Meeting Papers 1212, Society for Economic Dynamics.
    7. Michael J. Sposi, 2017. "Demographics and the Evolution of Global Imbalances," Globalization Institute Working Papers 332, Federal Reserve Bank of Dallas, revised 15 Apr 2019.
    8. Yang, Han, 2019. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 96054, University Library of Munich, Germany.
    9. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    10. Horag Choi & George Alessandria, 2015. "The Dynamics of the Trade Balance and the Real Exchange Rate: The J Curve and Trade Costs?," 2015 Meeting Papers 1413, Society for Economic Dynamics.
    11. Yang, Han, 2020. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 99976, University Library of Munich, Germany.
    12. Jonas C. Crews & Fernando Leibovici, 2018. "Trade Adjusts Gradually After Trade Liberalization," Economic Synopses, Federal Reserve Bank of St. Louis, issue 1, pages 1-2.
    13. Wyatt J. Brooks & Pau S. Pujolas, 2018. "Capital accumulation and the welfare gains from trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 491-523, August.
    14. Michael Sposi & Ana Maria Santacreu, 2017. "Trade Liberalization Versus Protectionism: Are the Dynamic Welfare Implications Symmetric?," 2017 Meeting Papers 1617, Society for Economic Dynamics.
    15. Alvarez, Fernando, 2017. "Capital accumulation and international trade," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 1-18.

    More about this item

    Keywords

    Welfare gains from trade; Dynamic gains; 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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