Additive versus multiplicative trade costs and the gains from trade liberalizations
In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Band 47, Heft 3, S. 1032-1046
ISSN: 1540-5982
AbstractThis paper addresses welfare effects from trade liberalization in a Melitz () heterogeneous‐firms trade model including the empirically important per‐unit (i.e., additive) trade costs in addition to the conventional iceberg (i.e., multiplicative) and fixed trade costs. The novel contribution of the paper is the result that the welfare gain for a given increase in trade openness is higher for reductions in per‐unit (additive) trade costs than for reductions in iceberg (multiplicative) trade costs. The ranking derives from differences in intra‐industry reallocations and, in particular, from dissimilar impacts on the number of exporters (i.e., the extensive margin of trade).