 Trade, Diffusion and the Gains from OpennessNo 126, 2007 Meeting Papers from Society for Economic Dynamics Abstract: Building on Eaton and Kortum's (2002) model of Ricardian trade, Alvarez and Lucas (2005) calculate that a small country representing 1% of the world's GDP experiences a gain of 41% as it goes from autarky to frictionless trade with the rest of the world. But the gains from openness, which includes not only trade but all the other ways through which countries interact, are arguably much higher than the gains from trade. This paper presents and then calibrates a model where countries interact through trade and diffusion of ideas, and then quantifies the overall gains from openness and the contribution of trade to these gains. Having the model match the trade data (i.e., the gravity equation) and the observed growth rate is critical for this quantification to be reasonable. It is shown that for this match it is necessary to introduce diffusion and/or knowledge spillovers to the basic model of trade and growth in Eaton and Kortum (2001). The main result of the paper is that, compared to the model without diffusion, the gains from trade are smaller whereas the gains from openness are much larger when diffusion is included in the model. Date: 2007 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:126 Access Statistics for this paper More papers in 2007 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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