Missing gains from trade?

Marc Melitz and Stephen Redding

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 trade can 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 quantitative approach 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

JEL-codes: F10 F11 F15 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2014-01
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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http://eprints.lse.ac.uk/60172/ Open access version. (application/pdf)

Related works:
Journal Article: 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? (2014)
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing Gains from Trade?
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:60172

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