Additive versus multiplicative trade costs and the gains from trade

Allan Sørensen

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper addresses welfare effects from trade liberalization in a heterogeneous-fi?rms trade model including the empirically important per-unit (i.e. additive) trade costs in addition to the conventional iceberg (i.e. multiplicative) and fi?xed trade costs. The novel contribution of the paper is the result that the welfare gain for a given increase in trade openness is higher for reductions in per-unit (additive) trade costs than for reductions in iceberg (multiplicative) trade costs. The ranking derives from differences in intra-industry reallocations and in particular from dissimilar impacts on the number of exporters (i.e., the extensive margin of trade).

Keywords: iceberg trade costs; per-unit (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 (search for similar items in EconPapers)
Pages: 12
Date: 2012-02-21
New Economics Papers: this item is included in nep-int and nep-tre
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2012-07

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