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Missing gains from trade?

Melitz, Marc J. and Redding, Stephen (2014) Missing gains from trade? CEP Discussion Papers (CEPDP1254). Centre for Economic Performance, London School of Economics and Political Science, 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
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 12 Nov 2014 17:24
Last Modified: 20 Feb 2019 03:48
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60172

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