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On the Heterogeneous Welfare Gains and Losses from Trade

Daniel Carroll and Sewon Hur ()

No 190600, Working Papers from Federal Reserve Bank of Cleveland

Abstract: How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods constitute a larger fraction of expenditures for poor households. Second, we build a trade model with nonhomothetic preferences—to generate the documented relationship between tradable expenditure shares, income, and wealth—and uninsurable earnings risk—to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 67 percent larger than those in the highest wealth decile.

Keywords: trade gains; inequality; consumption (search for similar items in EconPapers)
JEL-codes: E21 F10 F13 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
Date: 2019-03-22
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https://doi.org/10.26509/frbc-wp-201906 Full text (text/html)

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Working Paper: On the Heterogeneous Welfare Gains and Losses from Trade (2019) Downloads
Working Paper: On the Heterogeneous Welfare Gains and Losses from Trade (2019) Downloads
Working Paper: On the Heterogeneous Welfare Gains and Losses from Trade (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:190600

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DOI: 10.26509/frbc-wp-201906

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