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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Gains from trade liberalization with flexible extensive margin adjustment |
| Organization Unit | |
| Authors |
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| Language |
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| Series Name | SSRN |
| Number | 3970457 |
| ISSN | 1556-5068 |
| Number of Pages | 49 |
| Date | 2021 |
| Abstract Text | We propose a new sufficient statistic to measure the ex-post welfare gains from trade in CES models featuring any productivity distribution or pattern of selection into production and exporting. Our statistic is based on a single data moment, the change in the market share of continuing domestic producers, and a single structural parameter, the elasticity of substitution between products. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement using data on observed firm selection and simulated firm selection in a calibrated model with a flexible extensive margin. We find that welfare gains are substantially smaller than implied by welfare formulas that assume that the extensive margin behaves according to a standard Melitz-Pareto model with iso-elastic import demand. |
| Related URLs | |
| Digital Object Identifier | 10.2139/ssrn.3970457 |
| Other Identification Number | merlin-id:22111 |
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| Keywords | Trade, welfare, firms, selection, extensive margin, sufficient statistic, liberalization |