Missing Gains from Trade?

Marc Melitz and Stephen Redding

Scholarly Articles from Harvard University Department of Economics

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 tradecan 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 quantitativeapproach 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.

Date: 2014
New Economics Papers: this item is included in nep-int
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Published in American Economic Review

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Journal Article: Missing Gains from Trade? (2014)
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Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing gains from trade? (2014)
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing Gains from Trade?
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