Goods Trade, Factor Mobility and Welfare
NBER Working Paper No. 18008
Much trade occurs intra-nationally across regions within countries, where not only goods but also factors of production are mobile across locations. This paper extends a recent class of quantitative trade models to incorporate factor mobility. We generalize the standard approach to undertaking counterfactuals in these models to allow for endogenous reallocations of mobile factors across locations. We show that each location’s trade share with itself is no longer a sufficient statistic for the welfare gains from trade. We derive a bias correction term for adjusting the standard measure of the aggregate welfare gains from trade to take into account these endogenous reallocations of resources.
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This paper was revised on June 7, 2014
Document Object Identifier (DOI): 10.3386/w18008
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