Department of Economics and Business Economics

Additive versus multiplicative trade costs and the gains from trade

Research output: Working paperResearch

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  • Wp12 07

    Submitted manuscript, 362 KB, PDF document

This paper addresses welfare effects from trade liberalization in a heterogeneous-fi…rms trade model including the empirically important per-unit (i.e. additive) trade costs in addition to the conventional iceberg (i.e. multiplicative) and fi…xed 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).
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages12
Publication statusPublished - 21 Feb 2012

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