Captial Accumulation and the Welfare Gains from Trade

Wyatt Brooks () and Pau Pujolas

Department of Economics Working Papers from McMaster University

Abstract: We measure the gains from a trade cost reduction in a model with dynamic accumulation of factors. We show that the tight link between import intensity and gains from trade that exists in static models breaks down along transition paths in dynamic models. When trade costs are reduced, the need to accumulate factors temporarily shifts spending from consumption to investment. Import intensity may rise or fall along the transition path, depending on the relative import intensity of consumption and investment. Calibrating the model to the U.S. economy, we find that investment is more import intensive than consumption, so that import intensity is falling along the transition path even as consumption is rising. Therefore, while higher import intensity is associated with higher consumption when comparing steady states (as in static models), it is associated with lower consumption along a given transition path. We also consider the case of endogenous firm creation as another form of investment and factor accumulation, and again find a negative relationship between consumption and import intensity along the transition path.

Keywords: Dynamics; Capital Accumulation; International Trade; Welfare Gains from Trade (search for similar items in EconPapers)
JEL-codes: E13 E22 F11 F41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2016-03, Revised 2017-07
New Economics Papers: this item is included in nep-int, nep-pr~, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://socserv.mcmaster.ca/econ/rsrch/papers/archive/McMasterEconWP2016-03.pdf (application/pdf)

Related works:
Journal Article: Capital accumulation and the welfare gains from trade (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2016-03

Access Statistics for this paper

More papers in Department of Economics Working Papers from McMaster University Contact information at EDIRC.
Bibliographic data for series maintained by ().