THE COST OF TRADE DISRUPTIONS AT DIFFERENT STAGES OF DEVELOPMENT

Juan Carlos Conesa, Matthew J. Delventhal, Pau Pujolas and Gajendran Raveendranathan

International Economic Review, 2024, vol. 65, issue 3, 1133-1161

Abstract: We study trade disruptions at different stages of development in a two‐country, three‐sector model of Spain and United Kingdom from 1850 to 2000. The impact of trade disruptions depends on trade openness and the productivity gap between countries. A trade collapse today (more openness, less gap) comparable to the Inter‐War Trade Collapse (IWTC) decreases the capital stock threefold (12% instead of 4%) and lifetime consumption fourfold (1.58% instead of 0.37%). Capital accumulation amplifies the cost of trade disruptions. The IWTC promoted Spanish industrialization, while the opposite would be true today.

Date: 2024
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