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Do what you know and leave the rest to the experts: Quantifying the gains from efficient trade

Author

Listed:
  • Larch, Mario
  • Meinen, Philipp
  • Nagengast, Arne J.
  • Yotov, Yoto

Abstract

We develop and test a theory of efficient international trade. Efficiency gains arise through lower trade costs faced by 'trade specialists', whose superiority over 'common traders' manifests itself through lower trade costs. To test our theory, we construct and deploy a novel dataset based on firm-level merchanting data. Our estimates reveal that, on average, the trade costs for the 'trade specialists' are about four times lower than for non-specialists. The corresponding welfare effects from globally efficient trade amount to a remarkable gain of 80%, on average, which sends an encouraging message for the potential gains from trade that are missing in the existing literature.

Suggested Citation

  • Larch, Mario & Meinen, Philipp & Nagengast, Arne J. & Yotov, Yoto, 2025. "Do what you know and leave the rest to the experts: Quantifying the gains from efficient trade," Discussion Papers 15/2025, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:319639
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    2. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    3. Timothy J. Coelli & D.S. Prasada Rao & Christopher J. O’Donnell & George E. Battese, 2005. "An Introduction to Efficiency and Productivity Analysis," Springer Books, Springer, edition 0, number 978-0-387-25895-9, March.
    4. Sickles,Robin C. & Zelenyuk,Valentin, 2019. "Measurement of Productivity and Efficiency," Cambridge Books, Cambridge University Press, number 9781107036161, September.
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    Keywords

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    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F10 - International Economics - - Trade - - - General

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