General Equilibrium Analysis of the Eaton-Kortum Model of International Trade

Fernando Alvarez and Robert E. Lucas

No 11764, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a variation of the Eaton-Kortum model, a competitive, constant-returns-to-scale multicountry Ricardian model of trade. We establish existence and uniqueness of an equilibrium with balanced trade where each country imposes an import tariff. We analyze the determinants of the cross-country distribution of trade volumes, such as size, tariffs and distance, and compare a calibrated version of the model with data for the largest 60 economies. We use the calibrated model to estimate the gains of a world-wide trade elimination of tariffs, using the theory to explain the magnitude of the gains as well as the differential effect arising from cross-country differences in pre-liberalization of tariffs levels and country size.

JEL-codes: F0 F1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-int
Date: 2005-11
Note: EFG ITI
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Journal Article: General equilibrium analysis of the Eaton-Kortum model of international trade (2007)
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