Misallocation under trade liberalization by Yan Bai, Keyu Jin, Dan Lu
By: Bai, Yan
.
Contributor(s): Jin, Keyu | Lie Dan Lu, Tracey.
Material type: 
ArticlePublisher: 2024Subject(s): IMPUESTOS | COMERCIO INTERNACIONAL | ACUERDOS DE LIBRE COMERCIO | ASIGNACION DE RECURSOS | ORGANISMOS INTERNACIONALES
In:
The American Economic Review v. 114, n. 7, July 2024, p. 1949-1985Summary: This paper formalizes a classic idea that in second-best environments trade can induce welfare losses: incremental income losses from distortions can outweigh trade gains. In a Melitz model with distortionary taxes, we derive sufficient statistics for welfare gains/losses and show departures from the efficient case (Arkolakis, Costinot, and Rodríguez-Clare 2012) can be captured by the gap between an input and output share and domestic extensive margin elasticities. The loss reflects an endogenous selection of more subsidized firms into exporting. Using Chinese manufacturing data in 2005 and model-inferred firm-level distortions, we demonstrate that a sizable negative fiscal externality can potentially offset conventional gains.
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| OP 234/2024/6-1 Nobel lecture | OP 234/2024/6-2 Local economic and political effects of trade deals | OP 234/2024/7 The American Economic Review | OP 234/2024/7-1 Misallocation under trade liberalization | OP 234/2024/7-2 100 Years of rising corporate concentration | OP 234/2024/8 The American Economic Review | OP 234/2024/8-1 Repeated trading |
Bibliografía
This paper formalizes a classic idea that in second-best environments trade can induce welfare losses: incremental income losses from distortions can outweigh trade gains. In a Melitz model with distortionary taxes, we derive sufficient statistics for welfare gains/losses and show departures from the efficient case (Arkolakis, Costinot, and Rodríguez-Clare 2012) can be captured by the gap between an input and output share and domestic extensive margin elasticities. The loss reflects an endogenous selection of more subsidized firms into exporting. Using Chinese manufacturing data in 2005 and model-inferred firm-level distortions, we demonstrate that a sizable negative fiscal externality can potentially offset conventional gains.
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