# **Table 3: Breaking the Equivalence: Labor-Leisure Choice, Intermediates and Multiple Sectors**

**Impacts of Global Ten Percent Reduction in Iceberg Trade Costs** Results are Hicksian Equivalent Variation as a Percent of Consumption <u>All scenarios include trade imbalances, but have zero tariffs and a single primary factor</u>

||<br>1|<br>**2**|<br>**3**|<br>**4**|<br>**5**|<br>**6**|<br>**7**|<br>**8**|**9**|
|---|---|---|---|---|---|---|---|---|---|
||**Labo**<br>**Single Secto**<br>|**r-Leisure Ch**<br>**r-No interm**<br>|**oice**<br>**ediates**<br>||**Single Secto**<br><br>**Cobb-D**|**r**<br><br>**ouglas Deman**|<br><br>**d for Interm**|**Four Sector**<br><br>**ediates**|**s**<br>|
||**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|**Armington**|**Krugman**|**Melitz**|
|**Region**|σ(D,M) = 5.58*|σ = 5.58*|σ=5.0; a=4.58*|σ(D,M) = 5.58*|σ = 5.58*|σ=5.0; a=4.58*|σ(D,M) = 6.12*|σ = 5.64*|σ=5.0; a=4.58*|
|Australia-New Zealand|3.1%|3.23%|3.26%|3.2%|4.2%|4.4%|3.59%|3.71%|3.66%|
|Canada|4.1%|4.32%|4.36%|4.1%|5.1%|5.3%|4.2%|6.3%|6.9%|
|China|4.0%|4.19%|4.23%|3.9%|6.7%|7.5%|3.5%|9.8%|12.5%|
|Japan|2.1%|2.25%|2.27%|2.3%|2.9%|3.1%|2.1%|4.3%|4.9%|
|Mexico-Chile-Peru|4.8%|5.02%|5.07%|4.7%|5.9%|6.1%|4.9%|6.4%|6.8%|
|Low Income NEC|5.7%|6.10%|6.15%|5.7%|7.4%|7.7%|6.5%|5.8%|5.5%|
|Middle Income NEC|3.3%|3.49%|3.52%|3.4%|4.4%|4.6%|3.7%|3.7%|3.6%|
|OECD NEC|2.3%|2.42%|2.44%|2.4%|3.2%|3.4%|2.3%|3.8%|4.2%|
|Philippines|4.6%|4.91%|4.95%|4.7%|5.9%|6.1%|4.8%|7.2%|7.8%|
|United States|1.7%|1.85%|1.86%|1.9%|2.3%|2.4%|1.9%|2.8%|3.0%|
|average for the World|2.69%|2.85%|2.87%|2.79%|3.76%|3.98%|2.80%|4.34%|4.83%|

* σ(D,M) is the Armington elasticity of substitution between imports and domestic goods; σ is the Dixit-Stiglitz elasticity of substitution between varieties in a sector; and "a" is the shape parameter in the Pareto distribution. **Source: Authors’ estimates.**

Table 3a: Parameters for Table 3--the Feenstra ratio and Proportional Changes in the Terms-of-trade (TOT).*

||1<br><br>|**2**<br><br>**Labor**<br>**Single Sec**|**3**<br><br>**-Leisure Ch**<br>**tor-No inte**|**4**<br><br>**oice**<br>**rmediates**|**5**<br>|**7**<br><br>**Cobb-**|**8**<br>**Douglas D**<br>**S**<br>|**9**<br>**emand for**<br>**ingle Sector**<br>|**10**<br>**Intermedi**<br> <br>|**11**<br>**ates**<br>|**12**<br><br>**Cobb-**|**13**<br>**Douglas**<br>**F**<br>|**14**<br>**Demand for**<br>**our Sector**<br>|**15**<br>**Intermed**<br>**s**<br>|**16**<br>**iates**<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
||**Armington**|**Krug**|**man**|**Me**|**litz**|**Armington**|**Krug**|**man**|**Me**|**litz**|**Armington**|**Kru**|**gman**|**M**|**elitz**|
|**Region**|**TOT**|**TOT**|**Feenstra**|**TOT**|**Feenstra**|**TOT**|**TOT**|**Feenstra**|**TOT**|**Feenstra**|**TOT**|**TOT**|**Feenstra**|**TOT**|**Feenstra**|
|Australia-New Zealand|1.004|1.004|1.030|1.004|1.031|1.005|1.005|1.019|1.005|1.020|1.021|1.013|1.016|1.013|1.014|
|Canada|1.007|1.008|1.040|1.007|1.042|1.003|1.004|1.025|1.004|1.027|1.009|1.020|1.029|1.021|1.037|
|China|1.008|1.009|1.037|1.009|1.039|1.003|1.006|1.020|1.007|1.024|0.993|1.003|1.030|1.004|1.042|
|Japan|0.996|0.996|1.023|0.996|1.023|0.999|0.998|1.015|0.998|1.015|0.990|0.999|1.021|0.999|1.026|
|Mexico-Chile-Peru|1.011|1.012|1.044|1.012|1.046|1.007|1.009|1.028|1.008|1.030|1.012|1.013|1.030|1.012|1.033|
|Low Income NEC|1.007|1.009|1.059|1.009|1.061|0.998|1.001|1.037|1.001|1.039|1.016|1.009|1.028|1.009|1.025|
|Middle Income NEC|1.006|1.006|1.032|1.006|1.033|1.005|1.006|1.020|1.005|1.021|1.014|1.003|1.018|1.002|1.013|
|OECD NEC|0.996|0.996|1.025|0.996|1.025|0.998|0.997|1.015|0.997|1.016|0.993|0.997|1.018|0.997|1.020|
|Philippines|1.001|1.002|1.051|1.002|1.051|0.996|0.997|1.033|0.997|1.034|0.997|1.006|1.037|1.006|1.042|
|United States|0.983|0.983|1.023|0.983|1.022|0.987|0.984|1.015|0.985|1.014|0.987|0.986|1.017|0.987|1.017|
|average for the World||||||||||||||||

*See section 5 for a definition of these parameters. We present the inverse of the Feenstra ratio, so an increase is a decline in the cost of a unit of utility due to variety increases. In the Armington model, the Feenstra ration = 1 in all cases, so is not presented.

**Source: Authors estimates**

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