Quantifying Gains from Trade

From Paul Krugman (via Brad Delong):

“Eaton-Kortum… yields a simple expression for the welfare gains from trade…. According to Subramanian’s estimates, overall trade in goods and services has risen from about 19 percent of world GDP in the early 1990s to 33 percent now, bringing us to a level of integration that really is historically unprecedented…. Plug[ging] Subramanian’s numbers into the equation above; I get a 4.9 percent rise in real incomes due to increased globalization. That’s by no means small change, but it’s only a fairly small fraction of… [the] 45 percent rise in global GDP per capita over the same period”

For more on this, see here or here from Andrés Rodríguez-Clare.

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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