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Capital Accumulation and Dynamic Gains from Trade

B Ravikumar, Ana Maria Santacreu and Michael Sposi ()

No 296, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: We compute welfare gains from trade in a dynamic, multi-country Ricardian model where international trade affects capital accumulation. We calibrate the model for 93 countries and examine transition paths between steady-states after a permanent, uniform trade liberalization across countries. Our model allows for both the relative price of investment and the investment rate to depend on the world distribution of trade barriers. Accounting for transitional dynamics, welfare gains are about 60 percent of those measured by comparing only the steady-states, and three times larger than those with no capital accumulation. We extend the model to incorporate adjustment costs to capital accumulation and endogenous trade imbalances. Relative to the model with balanced trade, the gains from trade increase more for small countries because they accumulate capital at faster rates by running trade deficits in the short run.

Keywords: capital accumulation; dynamics; trade imbalances; Welfare gains (search for similar items in EconPapers)
JEL-codes: E22 F62 F11 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2017-01-01, Revised 2018-03-01
New Economics Papers: this item is included in nep-dge and nep-int
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https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0296.pdf Original (application/pdf)
https://www.dallasfed.org/-/media/documents/institute/wpapers/2017/0296r2.pdf Revision 2 (application/pdf)
https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0296r1.pdf Revision 1 (application/pdf)

Related works:
Journal Article: Capital accumulation and dynamic gains from trade (2019) Downloads
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2018) Downloads
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017) Downloads
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:296

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DOI: 10.24149/gwp296r2

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