The Composition of Trade Flows and the Aggregate Effects of Trade Barriers

Scott French

No 2014-36, Discussion Papers from School of Economics, The University of New South Wales

Abstract: A widely used class of quantitative trade models implicitly assumes that patterns of com- parative advantage take a specific form such that they have no influence over the effect of trade barriers on aggregate trade flows and welfare. In this paper, I show that this assumption is inconsistent with patterns present in the product-level trade data and develop a framework in which to analyze the role of interactions among countries’ patterns of comparative advantage in determining the aggregate effects of trade barriers. The model preserves much of the tractability of standard aggregate quantitative trade models while allowing for the effects of any pattern of comparative advantage, across many products and countries, to be taken into account. After fitting the model to product-level trade data, I find that the composition of trade flows is quantitatively important in determining the welfare gains from trade and the aggregate effects of changes in trade barriers. A key finding is that the welfare gains from trade tend to be larger and more skewed toward low-income countries than an aggregate model would suggest.

Keywords: International Trade; Composition; Comparative Advantage; Trade Barriers; Welfare; Gravity; Income Differences; Elasticity of Substitution (search for similar items in EconPapers)
JEL-codes: F11 F14 F17 F62 O19 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-08
New Economics Papers: this item is included in nep-ger and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The composition of trade flows and the aggregate effects of trade barriers (2016)
Working Paper: The Composition of Trade Flows and the Aggregate Effects of Trade Barriers (2015)
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