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Quantifying Welfare Gains of Increased Trade Integration

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  • Jung, Benjamin
  • Felbermayr, Gabriel
  • Gröschl, Jasmin

Abstract

Since the 1990s,Germany and other European countries have become more open to trade. The period is characterized by the fall of the iron curtain, the surge of China and its accession to the World Trade Organization (WTO), the introduction of the Euro, the creation of the Schengen area, the enlargement of the European Union (EU), and the Global Europe Initiative. Linking the partial trade effects obtained from our sectoral gravity estimations based on the World-Input-Output Database (WIOD) to real income figures from the Penn World Tables, we find that at least one quarter of the welfare gains realized since 1990 are due to trade policy reforms. Feeding a quantitative simulation exercise based on a version of the Melitz (2003) model with multiple countries and sectors and input-output linkages with the trade costs effects implied by our gravity estimations, we find that Germany’s real per capita income would drop by 5.3%, if all trade liberalization steps since 1990were fully undone.

Suggested Citation

  • Jung, Benjamin & Felbermayr, Gabriel & Gröschl, Jasmin, 2018. "Quantifying Welfare Gains of Increased Trade Integration," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181606, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc18:181606
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    References listed on IDEAS

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    1. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
    2. Magnus Lodefalk, 2014. "The role of services for manufacturing firm exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 59-82, February.
    3. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    4. repec:oup:ecpoli:v:18:y:2003:i:37:p:315-356 is not listed on IDEAS
    5. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
    6. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    NewQuantitative TradeModels; Gravity equation; European Integration; Gains from Trade;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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