Melitz, Marc J. and Redding, Stephen (2014) Missing gains from trade? CEP Discussion Papers (CEPDP1254). London School of Economics and Political Science. Centre for Economic Performance, London, UK.
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Abstract
The theoretical result that there are welfare gains from trade is a central tenet of international economics. In a class of trade models that satisfy a "gravity equation," the welfare gains from trade can be computed using only the open economy domestic trade share and the elasticity of trade with respect to variable trade costs. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://cep.lse.ac.uk/_new/publications/series.asp?... |
| Additional Information: | © 2014 The Authors |
| Divisions: | Centre for Economic Performance |
| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HV Social pathology. Social and public welfare. Criminology |
| JEL classification: | F - International Economics > F1 - Trade > F10 - General F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade F - International Economics > F1 - Trade > F15 - Economic Integration |
| Date Deposited: | 12 Nov 2014 17:24 |
| Last Modified: | 17 Nov 2024 20:51 |
| Funders: | Economic and Social Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/60172 |
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