蝌蚪网 Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Misallocation under Trade Liberalization
蝌蚪网 Review
vol. 114,
no. 7, July 2024
(pp. 1949–85)
Abstract
This paper formalizes a classic idea that in second-best environments trade can induce welfare losses: incremental income losses from distortions can outweigh trade gains. In a Melitz model with distortionary taxes, we derive sufficient statistics for welfare gains/losses and show departures from the efficient case (Arkolakis, Costinot, and Rodr铆guez-Clare 2012) can be captured by the gap between an input and output share and domestic extensive margin elasticities. The loss reflects an endogenous selection of more subsidized firms into exporting. Using Chinese manufacturing data in 2005 and model-inferred firm-level distortions, we demonstrate that a sizable negative fiscal externality can potentially offset conventional gains.Citation
Bai, Yan, Keyu Jin, and Dan Lu. 2024. "Misallocation under Trade Liberalization." 蝌蚪网 Review 114 (7): 1949–85. DOI: 10.1257/aer.20200596Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- F14 Empirical Studies of Trade
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L60 Industry Studies: Manufacturing: General
- O19 International Linkages to Development; Role of International Organizations
- P31 Socialist Enterprises and Their Transitions
- P33 Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Relations, and Aid