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Capital Accumulation and Welfare Gains from Trade

Author

Listed:
  • Michael Sposi

    (Federal Reserve Bank of Dallas)

  • Ana Maria Santacreu

    (St. Louis Fed)

  • B Ravikumar

    (Federal Reserve Bank of St Louis)

Abstract

We compute welfare gains from trade in a dynamic multicountry Ricardian model where international trade affects the factors of production in each period. Our environment is a version of Eaton and Kortum (2002) embedded into a two-sector neoclassical growth model. International trade affects investment and, hence capital stock in each period. We calibrate the model and conduct two counterfactual experiments: (i) an unanticipated move to a world with frictionless trade and (ii) an unanticipated move to a world with the calibrated level of U.S. trade barriers. Our computation of the welfare gains uses levels of endogenous variables along the transition path and does not rely on just percentage changes (the hat algebra). In both experiments, (a) about 60 percent of the gains from the baseline steady state to the new steady state is achieved along the transition path and (b) countries that have lower GDP or higher barriers in the baseline experience the largest gains from trade liberalization.

Suggested Citation

  • Michael Sposi & Ana Maria Santacreu & B Ravikumar, 2016. "Capital Accumulation and Welfare Gains from Trade," 2016 Meeting Papers 1637, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1637
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    References listed on IDEAS

    as
    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. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2013. "Ricardian selection," Journal of International Economics, Elsevier, vol. 89(1), pages 96-109.
    3. Michael Sposi & B Ravikumar & Piyusha Mutreja, 2014. "Capital goods trade and economic development," 2014 Meeting Papers 1374, Society for Economic Dynamics.
    4. 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.
    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. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    7. 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.
    8. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2015. "The Impact of Trade on Labor Market Dynamics," NBER Working Papers 21149, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Joseph Steinberg, 2018. "The Macroeconomic Impact of NAFTA Termination," 2018 Meeting Papers 753, Society for Economic Dynamics.
    2. George Alessandria & Horag Choi & Kim Ruhl, 2014. "Trade Adjustment Dynamics and the Welfare Gains from Trade," Working Papers 14-11, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Sposi, Michael J., 2017. "Demographics and the Evolution of Global Imbalances," Globalization Institute Working Papers 332, Federal Reserve Bank of Dallas, revised 15 Apr 2019.
    4. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    5. 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.
    6. repec:fip:fedles:00097 is not listed on IDEAS
    7. repec:eee:moneco:v:91:y:2017:i:c:p:1-18 is not listed on IDEAS
    8. 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.
    9. Michael Sposi & Ana Maria Santacreu, 2017. "Trade Liberalization Versus Protectionism: Are the Dynamic Welfare Implications Symmetric?," 2017 Meeting Papers 1617, Society for Economic Dynamics.

    More about this item

    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
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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