3-D Gains from Trade

Abstract

Static trade models imply modest gains from trade. I quantify the gains from trade in a multi-country dynamic stochastic environment, taking into account the contributions to welfare of trade across states of the world, and over time, as well as trade within dates and states (3-D gains). For developing countries, which have volatile productivity, standard risk aversion implies that 3-D gains from trade are at least twice as big as static gains, even under financial autarky. Because productivity is less volatile for developed countries, their 3-D gains from trade are only modestly bigger than static gains, even under complete markets.

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