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Missing Gains from Trade?

Author

Listed:
  • Melitz, Marc J.
  • Redding, Stephen J.
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.

Suggested Citation

  • Melitz, Marc J. & Redding, Stephen J., 2014. "Missing Gains from Trade?," Scholarly Articles 14596340, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:14596340
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    References listed on IDEAS

    as
    1. Pol Antràs & Davin Chor, 2013. "Organizing the Global Value Chain," Econometrica, Econometric Society, vol. 81(6), pages 2127-2204, November.
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    6. Kei-Mu Yi, 2010. "Can Multistage Production Explain the Home Bias in Trade?," American Economic Review, American Economic Association, vol. 100(1), pages 364-393, March.
    7. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    8. repec:hhs:iuiwop:430 is not listed on IDEAS
    9. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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