Missing Gains from Trade?

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Missing Gains from Trade?

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Title: Missing Gains from Trade?
Author: Melitz, Marc J.; Redding, Stephen J.

Note: Order does not necessarily reflect citation order of authors.

Citation: Melitz, Marc J., and Stephen J. Redding. 2014. “ Missing Gains from Trade?.” American Economic Review 104 (5) (May): 317–321. doi:10.1257/aer.104.5.317.
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Abstract: 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 tradecan 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 quantitativeapproach 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.
Published Version: 10.1257/aer.104.5.317
Other Sources: http://www.nber.org/papers/w19810.pdf
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:14596340
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