New Trade Models, New Welfare Implications

Marc Melitz and Stephen Redding

No 18919, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs. In this more general setting, the domestic trade share and endogenous trade elasticity are no longer sufficient statistics for welfare. Additional empirically observable moments of the micro structure also matter for welfare.

JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-bec, nep-eff and nep-int
Note: ITI
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Citations: View citations in EconPapers (20)

Published as Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-46, March.

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Journal Article: New Trade Models, New Welfare Implications (2015)
Working Paper: New Trade Models, New Welfare Implications (2015)
Working Paper: New Trade Models, New Welfare Implications
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