# **Table 7: Sensitivity of the Global Free Trade Welfare Results to a Common Change in the Trade Response***

## **All results in the Model with Nine-Sectors, Three Primary Factors with Labor-Leisure Choice and Trade Imbalances. Results are Hicksian Equivalent Variation as a Percent of Consumption**

## **<u>7A: Change in the Pareto Shape Parameter**</u>**

||<br>**Low**|<br>**trade respo**|<br>**nse**|**Centr**|**al trade res**|**ponse**|**High**|**trade resp**|**onse**|
|---|---|---|---|---|---|---|---|---|---|
||**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|
|Pareto shapeparameter(a)|||4.13|||4.58|||5.03|
|Armington or Dixit-Stiglitz elasticity|7.53|5.2|5|8.03|5.83|5|8.51|6.38|5|
|change inglobal trade share|1.82%|1.82%|1.82%|1.99%|1.99%|1.99%|2.15%|2.15%|2.15%|
|**Region**||||||||||
|Australia-New Zealand|0.5%|0.9%|1.0%|0.6%|0.9%|1.0%|0.6%|0.9%|1.1%|
|Canada|0.2%|0.5%|0.5%|0.2%|0.5%|0.6%|0.2%|0.4%|0.6%|
|China|0.3%|-1.6%|-1.9%|0.3%|-1.2%|-2.2%|0.3%|-0.9%|-2.4%|
|Japan|0.4%|1.4%|1.5%|0.4%|1.3%|1.6%|0.5%|1.3%|1.7%|
|Mexico-Chile-Peru|-0.06%|0.0%|0.0%|-0.05%|0.0%|0.1%|-0.05%|0.0%|0.1%|
|Low Income NEC|-0.2%|0.9%|0.9%|-0.2%|0.6%|0.9%|-0.1%|0.5%|0.8%|
|Middle Income NEC|-0.2%|0.1%|0.1%|-0.2%|0.0%|0.2%|-0.2%|0.0%|0.2%|
|OECD NEC|0.4%|1.3%|1.3%|0.4%|1.2%|1.4%|0.5%|1.2%|1.4%|
|Philippines|0.1%|0.6%|0.7%|0.1%|0.5%|0.7%|0.1%|0.4%|0.7%|
|United States|0.4%|0.4%|0.4%|0.4%|0.4%|0.5%|0.4%|0.4%|0.5%|
|average for the World|0.224%|0.477%|0.484%|0.242%|0.478%|0.505%|0.260%|0.482%|0.526%|

***** The trade response is the change in the global trade share, defined above as 1 −  _W_ . It is calculated in the Melitz model; then the Dixit-Stiglitz and Armington elasticities are adjusted in the Krugman and Armington models such that the trade responses are equal in the three market structures.

****** For the high and low value of the Pareto shape parameter, we take plus and minus two standard deviations from the mean of the preferred distribution estimated by Balistreri et al. (2011).

## **-** **<u>7B. Change in the Dixit Stiglitz Elasticity of Substitution</u>**

||<br>**High**|<br>**trade resp**|<br>**onse**|<br>**Centr**|**al trade res**|**ponse**|**Low**|**trade resp**|**onse**|
|---|---|---|---|---|---|---|---|---|---|
||**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|
|Pareto shapeparameter(a)|||4.58|||4.58|||4.58|
|Armington or Dixit-Stiglitz elasticity|8.25|6.08|4.5|8.03|5.83|5|7.86|5.63|5.5|
|change inglobal trade share|2.06%|2.06%|2.06%|1.99%|1.99%|1.99%|1.93%|1.93%|1.93%|
|**Region**||||||||||
|Australia-New Zealand|0.6%|0.9%|1.2%|0.6%|0.9%|1.0%|0.6%|0.9%|0.9%|
|Canada|0.2%|0.5%|0.7%|0.2%|0.5%|0.6%|0.2%|0.5%|0.5%|
|China|0.3%|-1.0%|-3.8%|0.3%|-1.2%|-2.2%|0.3%|-1.3%|-1.4%|
|Japan|0.4%|1.3%|1.9%|0.4%|1.3%|1.6%|0.4%|1.4%|1.4%|
|Mexico-Chile-Peru|-0.05%|0.0%|0.1%|-0.05%|0.0%|0.1%|-0.06%|0.0%|0.0%|
|Low Income NEC|-0.2%|0.6%|0.2%|-0.2%|0.6%|0.9%|-0.2%|0.7%|0.7%|
|Middle Income NEC|-0.2%|0.0%|0.4%|-0.2%|0.0%|0.2%|-0.2%|0.0%|0.1%|
|OECD NEC|0.4%|1.2%|1.6%|0.4%|1.2%|1.4%|0.4%|1.2%|1.2%|
|Philippines|0.1%|0.5%|1.0%|0.1%|0.5%|0.7%|0.1%|0.5%|0.5%|
|United States|0.4%|0.4%|0.6%|0.4%|0.4%|0.5%|0.4%|0.4%|0.4%|
|average for the World|0.251%|0.479%|0.510%|0.242%|0.478%|0.505%|0.236%|0.477%|0.481%|

**Source: Authors’ Estimates**

42