David Baqaee, Kunal Sangani, 14 August 2021

There are multiple mechanisms that drive aggregate increasing returns to scale. This column argues that the higher aggregate efficiency in larger markets may principally arise from a ‘Darwinian effect’ that causes high-markup firms to expand relative to low-markup firms as market size increases. This effect, which does not depend on the shape of the demand curve, means that additional firm entry can be valuable because it helps mitigate cross-sectional misallocation. Policymakers can harness this effect by incentivising entry, for example with a subsidy on entry costs. 

Michael Blanga-Gubbay, Paola Conconi, Mathieu Parenti, 28 April 2020

The number of regional trade agreements has grown significantly in recent years. There is an ongoing debate about the winners and losers from these agreements, as well as the political economy that shapes them. This column uses extensive data on lobbying expenditures in the US to analyse how firms exert political influence for free trade agreements. It shows that virtually all lobbying firms are in favour of such agreements. A theoretical model is used to explain this finding and further characterise the intensive margin of lobbying expenditures.

Brad Larsen, 22 October 2019

Some negotiations may fail even when there are potential gains from trading, but this is hard to estimate because we do not know what the private valuations of the buyers and sellers are. The column describes a database of trades from US car auctions and a recent study that quantifies the lost surplus from failed bilateral bargaining. In this market, 17-24% of negotiations ended in disagreement even when gains from trade existed. 

Giammario Impullitti, Omar Licandro, 29 April 2018

Globalisation discontents blame trade for destroying jobs and slashing wages, while its supporters rebut that trade openness generates aggregate gains that can potentially benefit all. However, assessing the gains from trade represents a long-standing challenge for economists. This column argues that that accounting for firms' innovation responses doubles the gains from trade obtained in static quantitative models.

Sergey Nigai, 04 September 2016

Trade economists routinely evaluate changes in consumer welfare due to trade based on the assumption of a representative consumer. This column argues that this assumption often disguises much of the heterogeneity in gains across the income distribution, which leads to an overestimation of the gains for the poor and underestimation for the rich, especially for developing countries. This could help explain the lack of public consensus on the benefits of recent free trade agreements.

Giovanni Federico, Antonio Tena-Junguito, 18 April 2016

The slowdown of global trade growth since the Global Crisis has raised concerns across the world. This column puts recent changes into perspective by presenting evidence on the export/GDP ratio and a rough measure of the gains from trade back to 1830. It shows that the interwar period was marked by a reversal of globalisation that makes recent trends look like a small blip. 

Joaquin Blaum, Claire Lelarge, Michael Peters, 05 December 2015

As intermediate inputs account for two thirds of world trade, understanding the implications of input trade is an important task in international economics. This column argues that spending patterns on foreign inputs at the firm-level are key to quantifying the welfare consequence of input trade, as trade in intermediates allows firms to reduce their costs of production thereby benefitting the aggregate economy. It estimates that a 20% drop in the share of imported inputs in France would lead to a 7% increase in the consumer price index.

Konstantins Benkovskis, Julia Woerz, 15 July 2014

Import price statistics may not be a reliable indicator of welfare gains. They must adequately reflect the fact that consumers value variety, and that consumer tastes and product quality change over time. This column evaluates existing findings, and introduces new results for the four largest EU economies – including evidence of higher consumer welfare gains than suggested by official import prices for the period from 1995 to 2012.

Marc Melitz, Stephen Redding, 10 March 2014

Recent research has sought to quantify the magnitude of the welfare gains from trade. One of the main findings from this literature is that the gains from trade are relatively modest. This column suggests a channel that the standard approach typically abstracts from. It argues that trade induces changes in domestic productivity through a more efficient organisation of production within the supply chain.

Marc Melitz, Stephen Redding, 30 May 2013

Trade theory is ten years into the ‘new new trade theory’ revolution. This column reviews the new thinking and how it shifted thinking from why nations trade to why firms trade. This opened the door to documenting the impact of firm-level changes on industry productivity and national welfare.

Gregory Corcos, Massimo Del Gatto, Giordano Mion, Gianmarco Ottaviano, 10 July 2012

As protectionist pressures mount worldwide, it is important to continue to shore up the case for open trade policy. This column presents new evidence from Europe on an old gain from trade – the weeding out effect – namely the way increased cross-border competition selects and favours the most productive firms. It argues that this mechanism brings about large gains.

Christoph Moser, Andrew Rose, 12 September 2011

How the costs and benefits of regional trade agreements are distributed is a controversial question among economists. CEPR DP8566 analyses the stock market response to a country's signing of an RTA. The authors find that the biggest 'bounce' occurs in a country's stock market when it signs an RTA with an already-strong trading partner, or when the country is poor.

Wolfgang Keller, Ben Li, Carol Shiue, 19 December 2010

The growing power of Chinese trade is almost daily news. This column argues that China’s role in world trade today is shaped in part by the post-1978 market reforms and in part by the Western invasion in the 19th century. Following the Opium Wars, China was forced to open its borders, providing the bedrock of technology and infrastructure that supported its future growth.


CEPR Policy Research