Gains from trade: Does sectoral heterogeneity matter?

On Measuring the Welfare Gains from Trade under Consumer Heterogeneity

I develop a multi-country multi-industry model of trade that features heterogeneous consumers with non-homothetic preferences. I use the model to quantify the measurement errors in the welfare gains estimates caused by the assumption of a representative consumer (ARC). First, I reduce the world level of all trade costs by 15% and find that ARC overestimates (underestimates) the gains of the poo...

Does wealth inequality reduce the gains from trade?

Panel data on 54 developing countries between 1960 and 2000 are used to investigate how the impact of opening to trade on economic growth is affected by wealth inequality. The results suggest (a) that opening to trade tends to accelerate growth but (b) that the addition to growth depends inversely on the level of wealth inequality prior to opening. These findings confirm the general importance ...

When does Heterogeneity Matter?

How do movements in the distribution of income a¤ect the macroeconomy? Krusell and Smith (1998) analyzed this question in a neoclassical growth model, and their results show that the representative-agent assumption provides a good approximation for aggregate behaviors of heterogeneous agents. This paper extends their analysis to a cash-in-advance model with heterogeneous money demand. It is sho...

Measurable Dynamic Gains from Trade

Growth-Poverty Linkages: Does Sectoral Composition Matter for Pakistan?

This study seeks to investigate the growth in agricultural, industrial and services sector of Pakistan in terms of their relative impacts on poverty reduction within the country. Further, it identifies the dynamic effects of growth on poverty as a way to capture the usual ‘trickle down’ effects. Secondary data ranging from 1981-2010 are used in the analysis and the results are obtained through ...