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Capital Accumulation and Dynamic Gains from Trade

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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.

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  • Ravikumar, B. & Santacreu, Ana Maria & Sposi, Michael J., 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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    1. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    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. 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.
    7. repec:ucp:jpolec:doi:10.1086/696279 is not listed on IDEAS
    8. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    9. 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.
    10. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
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    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

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    1. repec:eee:moneco:v:91:y:2017:i:c:p:1-18 is not listed on IDEAS

    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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