Capital Accumulation and Dynamic Gains from Trade

B Ravikumar, Ana Maria Santacreu and Michael Sposi

No 296, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: We compute welfare gains from trade in a dynamic, multi-country Ricardian model where international trade affects capital accumulation. We calibrate the model for 93 countries and examine transition paths between steady-states after a permanent, uniform trade liberalization across countries. Our model allows for both the relative price of investment and the investment rate to depend on the world distribution of trade barriers. Accounting for transitional dynamics, welfare gains are about 60 percent of those measured by comparing only the steady-states, and three times larger than those with no capital accumulation. We extend the model to incorporate adjustment costs to capital accumulation and endogenous trade imbalances. Relative to the model with balanced trade, the gains from trade increase more for small countries because they accumulate capital at faster rates by running trade deficits in the short run.

Keywords: Welfare gains; dynamics; capital accumulation; trade imbalances (search for similar items in EconPapers)
JEL-codes: E22 F11 F62 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2017-01-01
New Economics Papers: this item is included in nep-dge and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0296r1.pdf Revision 1 (application/pdf)
https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0296.pdf Original (application/pdf)

Related works:
Journal Article: Capital accumulation and dynamic gains from trade (2019)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2018)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017)
Working Paper: Capital Accumulation and Welfare Gains from Trade (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:296

DOI: 10.24149/gwp296r2

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