DP9398 Trade Theory with Numbers: Quantifying the Consequences of Globalization

Author(s): Arnaud Costinot, Andres Rodriguez-Clare
Publication Date: March 2013
Keyword(s): counterfactual analysis, globalization, gravity models, trade policy, welfare analysis
JEL(s): F11, F12, F13, F15, F17, F60, F62
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9398

We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic considerations---market structure, firm-level heterogeneity, multiple sectors, intermediate goods, and multiple factors of production---affect the magnitude of the gains from trade liberalization. We conclude by discussing a number of outstanding issues in the literature as well as alternative approaches for quantifying the consequences of globalization.