Missing Gains from Trade?

Marc Melitz and Stephen Redding

Working Paper from Harvard University OpenScholar

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 CLASSIFICATION: F10, F11, F15 KEYWORDS: Productivity, Sequential production, Welfare gains from trade

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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? (2014)
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