Missing Gains from Trade? / Marc J. Melitz, Stephen J. Redding.

Format:

Book

Author/Creator:

Melitz, Marc J.

Contributor:

National Bureau of Economic Research.

Redding, Stephen J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19810.

NBER working paper series no. w19810

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

The theoretical result that there are welfare gains from trade is a central tenet of international economics. In a class of trade models that satisfy a "gravity equation," the welfare gains from trade can be computed using only the open economy domestic trade share and the elasticity of trade with respect to variable trade costs. 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.

Notes:

Print version record

January 2014.