Trade, diffusion and the gains from openness
By: Andres Rodriguez-Clare.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13662; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13662.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Building on Eaton and Kortum's (2002) model of Ricardian trade, Alvarez and Lucas (2005) calculate that a small country representing 1% of the world's GDP experiences a gain of 41% as it goes from autarky to frictionless trade with the rest of the world.  But the gains from openness, which includes not only trade but all the other ways through which countries interact, are arguably much higher than the gains from trade.  This paper presents and then calibrates a model where countries interact through trade as well as diffusion of ideas, and then quantifies the overall gains from openness and the role of trade in generating these gains.  Having the model match the trade data (i.e., the gravity equation) and the observed growth rate is critical for this quantification to be reasonable.  The main result of the paper is that, compared to the model without diffusion, the gains from openness are much larger (206%-240%) and the gains from trade are smaller (13%-24%) when diffusion is included in the model.  This last result is a consequence of a novel feature of the model, namely that trade and diffusion are substitutes, implying that trade generates smaller gains when diffusion is present"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/5/2008.

Includes bibliographical references.

Also available in print.

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Mode of access: World Wide Web.