Globalization and Individual Gains from Trade

32 Pages Posted: 7 Oct 2009

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Yasusada Murata

Nihon University

Date Written: September 2009


We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. We show that, although trade reduces markups in both countries, its impact on variety depends on their relative position in the world income distribution: product diversity in the lower income country always expands, while that in the higher income country may shrink. When the latter occurs, the richer consumers in the higher income country may lose from trade because the relative importance of variety versus quantity increases with income. We illustrate this effect using data on GDP per capita and population for 186 countries, as well as parameter estimates for domestic income distributions. Our results suggest that U.S. trade with countries of similar GDP per capita makes all agents in both countries better off, whereas trade with countries having lower GDP per capita may adversely affect up to 11% of the U.S. population.

Keywords: general equilibrium, income heterogeneity, monopolistic competition, pro-competitive effects, product diversity

JEL Classification: D43, F12, F15

Suggested Citation

Behrens, Kristian and Murata, Yasusada, Globalization and Individual Gains from Trade (September 2009). CEPR Discussion Paper No. DP7448, Available at SSRN:

Kristian Behrens (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8

Yasusada Murata

Nihon University ( email )


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