Trade Theory with Numbers: Quantifying the Consequences of Globalization

Abstract

We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic considerations-market structure, firm-level heterogeneity, multiple sectors, intermediate goods, and multiple factors of production-affect the magnitude of the gains from trade liberalization. We conclude by discussing a number of outstanding issues in the literature as well as alternative approaches for quantifying the consequences of globalization.

Trading Goods or Human Capital: The Gains and Losses from Economic Integration

“…accounts, these results neither permit comparison with the trade theoretic claims, nor do they speak directly (or unambiguously) to the issues of whether trade and migration are substitutes or complements." 34 These outcomes are richer than the ones presented by the body of classic trade literature (Costinot and Rodríguez-Clare, 2013). In Table 5, the changes in the shares of trade (either imports or exports) are regressed on the changes in the shares of migration between two countries, assuming two different types of shocks: exogenous migration liberalization (in the first two columns) and exogenous trade liberalization (in the last two columns).…”

“…The general equilibrium in the system of N economies comprises the equalization of labour demands and supplies on perfect labour markets, the determination of the masses of entrepreneurs (such that profits are equal to zero), 8 A detailed list of equations, and the formal definition of the competitive equilibrium are outlined in Online Appendix A. 9 Noting the conclusions from Costinot and Rodríguez-Clare (2013) and Melitz and Redding (2015), I nevertheless decided to consider this relatively simple approach towards modelling international trade due to several arguments. First, I propose a framework that is certainly characterized by a unique general equilibrium.…”

Border Effects Without Borders: What Divides Japan's Internal Trade?

“…To account for the rich structure of the NCFS and the CFS, a multisector version of an-otherwise standard-Armington model (cf. Arkolakis et al, 2012;Costinot and Rodriguez-Clare, 2015) is adopted. In each prefecture i, j = 1, .…”

“…As common in the literature (cf Costinot and Rodriguez-Clare, 2015),. the exact hat notationv ≡ v /v is used to denote percentage changes.29 Both figures assume a trade cost elasticity of 1.56.…”

The Tyranny of Distance and the Gravity of Resources

“…The disadvantage of these antipodean countries relative to countries that benefit from location is of course even larger. Likewise trade volume measures can also be converted to approximate welfare cost measures for a broad class of models using just a few key parameter values that are readily available (Arkolakis et al, 2012;Costinot & Rodr ıguez-Clare, 2013). 18 Specifically Arkolakis et al (2012) show that the change in consumption, from C to C 0 , is given by the expression C 0 /C=(k 0 /k) 1/g , where k is the share of domestically produced consumption and g is the elasticity of imports with respect to relative import prices.…”