Misallocation Under Trade Liberalization / Yan Bai, Keyu Jin, Dan Lu.

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Bai, Yan

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26188.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper formalizes a classic idea that in second-best environments trade can induce welfare losses. In a framework that incorporates distortion wedges into a Melitz model, we analyze a channel in which trade can reduce allocative efficiency arising from the reallocation of resources. A key aggregate statistics that captures this negative selection is the gap between input and output shares. We derive sufficient conditions for reallocation loss due to trade under important distributions. Using Chinese manufacturing data, we show that this reallocation term is significantly negative, largely offsetting conventional gains to trade.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w26188 (Browse shelf(Opens below))	Not For Loan

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August 2019.

This paper formalizes a classic idea that in second-best environments trade can induce welfare losses. In a framework that incorporates distortion wedges into a Melitz model, we analyze a channel in which trade can reduce allocative efficiency arising from the reallocation of resources. A key aggregate statistics that captures this negative selection is the gap between input and output shares. We derive sufficient conditions for reallocation loss due to trade under important distributions. Using Chinese manufacturing data, we show that this reallocation term is significantly negative, largely offsetting conventional gains to trade.