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Commodity Trade Matters

Thibault Fally () and James Sayre

No 13132, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Primary commodities are used as inputs into all production processes, yet they account for approximately 16 percent of world trade. Despite their share in trade, we show that the aggregate gains from trade are largely understated if we ignore key features of commodities: low price elasticities of demand (difficulty in finding substitutes), low price elasticities of supply, and high dispersion of natural resources across countries. We develop a general-equilibrium model of consumption, production, and input-output linkages that explicitly accounts for these features. Our simulations confirm that the gains from trade are significantly larger, especially when considering large trade cost changes.

Keywords: Gains from trade; Multi-stage Production; Primary commodities (search for similar items in EconPapers)
JEL-codes: F10 O13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2018-08
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Working Paper: Commodity Trade Matters (2018) Downloads
Working Paper: Commodity Trade Matters (2018) Downloads
Working Paper: Commodity Trade Matters (2018) Downloads
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