Additive versus multiplicative trade costs and the gains from trade liberalizations

Allan Sørensen

Canadian Journal of Economics, 2014, vol. 47, issue 3, 1032-1046

Abstract: This paper addresses welfare effects from trade liberalization in a Melitz ( ) heterogeneousfirms trade model including the empirically important perunit (i.e., additive) trade costs in addition to the conventional iceberg (i.e., multiplicative) and fixed trade costs. The novel contribution of the paper is the result that the welfare gain for a given increase in trade openness is higher for reductions in perunit (additive) trade costs than for reductions in iceberg (multiplicative) trade costs. The ranking derives from differences in intraindustry reallocations and, in particular, from dissimilar impacts on the number of exporters (i.e., the extensive margin of trade).

JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (12)

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