Export, FDI and the welfare gains from trade liberalization

Puyang Sun, Yong Tan and Guang Yang

Economic Modelling, 2020, vol. 92, issue C, 230-238

Abstract: This paper extends Melitz and Redding (2015) to analyze the welfare gains from trade liberalization by adding foreign direct investment(FDI). Our model predicts that with FDI activities, welfare gains from trade liberalization will be strictly lower than those in a model without FDI, but only takes exports into account. In addition, the calibrated model indicates that with FDI activities, aggregate welfare reaches its maximum when the fixed export costs are positive rather than 0. Furthermore, we decompose the welfare gains induced by trade liberalization from continuing exporters, and switchers. The results show that in any case, with or without FDI, continuing exporters contribute a larger share to welfare gains than status switching firms.

Keywords: FDI; Welfare gains; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F13 F41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:230-238

DOI: 10.1016/j.econmod.2020.01.003

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