Capital Accumulation and Dynamic Gains from Trade

B Ravikumar, Ana Maria Santacreu and Michael Sposi

No 2017-5, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation. We examine transition paths for 93 countries following a permanent, uniform, unanticipated trade liberalization. Both the relative price of investment and the investment rate respond to changes in trade frictions. Relative to a static model, the dynamic welfare gains in a model with balanced trade are three times as large. The gains including transition are 60 percent of those computed by comparing only steady states. Trade imbalances have negligible effects on the cross-country distribution of dynamic gains. However, relative to the balanced-trade model, small, less-developed countries accrue the gains faster in a model with trade imbalances by running trade deficits in the short run but have lower consumption in the long-run. In both models, most of the dynamic gains are driven by capital accumulation.

Keywords: Welfare gains from trade; Dynamic gains; Capital accumulation; Trade imbalances (search for similar items in EconPapers)
JEL-codes: E22 F11 O11 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2017-02-27
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-int and nep-mac
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Capital accumulation and dynamic gains from trade (2019)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2018)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017)
Working Paper: Capital Accumulation and Dynamic Gains from Trade (2017)
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DOI: 10.20955/wp.2017.005

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