Heterogeneous Productivity and the Gains from Trade and FDI

Ehsan Choudhri () and Antonio Marasco

Open Economies Review, 2013, vol. 24, issue 2, 339-360

Abstract: Nontraded goods account for a major share of GDP in most economies, but have not been incorporated in the welfare analysis of monopolistic-competition models with heterogeneous productivity. This paper extends Helpman, Melitz and Yeaple (American Economic Review 94(1):300–316, 2004 ) to explore welfare effects in the presence of a nontraded good. We derive new analytical results about how the gains from trade and FDI are determined and affected by key parameters in the case of symmetric countries. The model is calibrated to a country group that includes all major developed countries. The gains from openness (trade and FDI) are found to be substantial (between 3.24 and 6.27 per cent of income) even if nontraded goods represent a major part of the economy. Most of these gains are attributed to trade rather than FDI. Copyright Springer Science+Business Media New York 2013

Keywords: Heterogeneous productivity; Gains from trade; Gains from FDI; F10; F12; F23 (search for similar items in EconPapers)
JEL-codes: F10 F12 F23 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11079-012-9243-7

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