3-D Gains from Trade

Abstract

I quantify gains from trade in a multi-country dynamic stochastic environment, including contributions from trade across states of the world and over time, as well as from trade within dates and states (3-D gains). For developing countries, which have volatile productivity, trade across states is an important source of gains. These are particularly large under complete markets, but even with balanced trade, endogenous risk sharing through the terms of trade contributes nontrivially to 3-D gains. Because developed countries’ productivity is less volatile, their 3-D gains are only modestly bigger than static gains, even under complete markets.

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