Thursday 25 August 2016

The gains from trade go mainly to ....

the poor. This is the conclusion of a new paper in the Quarterly Journal of Economics (Volume 131 Issue 3 August 2016). The basic reason for this being that the poor tend to concentrate their spending on good and services from the traded sectors of the economy.

The abstract of the paper, Measuring the Unequal Gains from Trade by Pablo D. Fajgelbaum and Amit K. Khandelwal, reads:
Individuals that consume different baskets of goods are differentially affected by relative price changes caused by international trade. We develop a methodology to measure the unequal gains from trade across consumers within countries. The approach requires data on aggregate expenditures and parameters estimated from a nonhomothetic gravity equation. We find that trade typically favors the poor, who concentrate spending in more traded sectors.
So another reason for being pro international trade.

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