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Capital Accumulation and Dynamic Gains from Trade

B Ravikumar, Ana Maria Santacreu and Michael Sposi ()

No 1810, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation and trade imbalances. We develop a gradient-free method to compute the exact transition path following a trade liberalization. We find that (i) larger countries accumulate a current account surplus, and financial resources flow from larger countries to smaller countries, boosting consumption in the latter, (ii) countries with larger short-run trade deficits accumulate capital faster, (iii) the gains are nonlinear in the reduction in trade costs, and (iv) capital accumulation accounts for substantial gains. The net foreign asset position before the liberalization is positively correlated with the gains. The tradables intensity in consumption goods production determines the static gains, and the tradables intensity in investment goods production determines the dynamic gains that include capital accumulation.

Keywords: Welfare gains; Dynamics; Capital accumulation; Trade imbalances (search for similar items in EconPapers)
JEL-codes: E22 F11 F62 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
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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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