Missing Gains from Trade?

In a class of trade models which satisfy a constant elasticity gravity equation, the welfare gains from trade can be computed using the open economy domestic trade share and a constant trade elasticity. The measured welfare gains from trade from this quantitative approach are typically relatively mo...

Full description

Saved in:
Bibliographic Details
Published inThe American economic review Vol. 104; no. 5; pp. 317 - 321
Main Authors Melitz, Marc J., Redding, Stephen J.
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.05.2014
Subjects
Commercial production
Competition
Costs
Domestic trade
Economic models
Economics
Elasticity
Elasticity of substitution
Final goods
Gains from trade
GAINS FROM TRADE WHEN FIRMS MATTER
International trade
Open economies
Perfect competition
Productivity
R&D
Research & development
Studies
Technology adoption
Trade
Trade development
Trade gains
Trade models
Unit costs
Online AccessGet full text

Cover

More Information
Summary:In a class of trade models which satisfy a constant elasticity gravity equation, the welfare gains from trade can be computed using the open economy domestic trade share and a constant trade elasticity. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.104.5.317