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Trade barriers and the relative price of tradables

Michael Sposi ()

Journal of International Economics, 2015, vol. 96, issue 2, 398-411

Abstract: In this paper I quantitatively address the role of trade barriers in explaining why prices of services relative to tradables are positively correlated with levels of development across countries. I argue that trade barriers play a crucial role in shaping the cross-country pattern of specialization across many tradable goods. I construct a multi-country, general equilibrium model of trade and derive tractable predictions that show how specialization affects relative prices. I calibrate the model to match the patterns of prices, levels of development, and bilateral trade across 103 countries. Through counterfactuals I find that removing trade barriers eliminates more than half of the gap in the relative price of services between rich and poor countries with only a minimal systematic effect on the absolute price of tradables.

Keywords: Relative prices; Tradables; Nontradables; Trade barriers (search for similar items in EconPapers)
JEL-codes: F1 O4 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Trade barriers and the relative price tradables (2013) Downloads
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DOI: 10.1016/j.jinteco.2015.02.003

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Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

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