Goods Trade, Factor Mobility and Welfare

Abstract

This paper extends a recent class of quantitative models of international trade to incorporate factor mobility within countries. We present a model-based decomposition of the variance of economic activity into the contributions of locational fundamentals, market access and their covariance. We show how the standard framework for undertaking model-based counterfactuals in trade can be augmented to obtain predictions for endogenous changes in the distribution of economic activity across regions within countries. A region's trade share with itself is no longer a sufficient statistic for the welfare gains from trade, which also depend on endogenous changes in the distribution of mobile factors.

Economic Reforms and Industrial Policy in a Panel of Chinese Cities

“…Although the focus of the paper is empirical, and we do not present a formal model, it is useful to motivate and interpret our analysis in the light of spatial equilibrium models such as Greenstone et al (2010) and Redding (2012). Greenstone et al (2010) construct a model economy comprising many locations where …rms produce using labor, capital, and land.…”

Regional Growth and Regional Decline

“…That might suggest abandoning regressions in favour of calibrating or estimating structural models, often drawing heavily on the work we described in section 4 of the chapter. Examples of this approach include Donaldson (2010), Redding (2012), and Van Nieuwerburgh and Weill (2010). The quantitative use of structural models has many advantages: general equilibrium effects are accounted for, parameters should have a clear interpretation, and progress can be made even when some data (such as regional price levels or productivity levels) are lacking, by inferring these from other outcomes.…”

Internal Geography, International Trade, and Regional Specialization

“…This industry-location margin is not present in recent models of trade and internal geography such as Ramondo et al (2014), Redding (2014), or Allen and Arkolakis (2013).…”

“…Redding (2014) develops a multi-region version of the trade and labor mobility model in Helpman (1998), while Allen and Arkolakis (2013) study an Armington model extended with labor mobility and external economies. These papers do not study the effect of international trade on the pattern of industrial specialization across regions within countries.…”