Missing Gains from Trade?

Marc Melitz and Stephen Redding

American Economic Review, 2014, vol. 104, issue 5, 317-21

Abstract: 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.

JEL-codes: F11 F43 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.317
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Citations: View citations in EconPapers (66)

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Related works:
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing gains from trade? (2014)
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing Gains from Trade? (2014)
Working Paper: Missing Gains from Trade?
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