Capital Accumulation and Dynamic Gains from Trade

59 Pages Posted: 27 Jan 2017 Last revised: 21 Feb 2019

See all articles by B. Ravikumar

B. Ravikumar

Federal Reserve Bank of Saint Louis

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Michael Sposi

Southern Methodist University (SMU)

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-01-01

Abstract

We compute welfare gains from trade in a dynamic, multi-country Ricardian model where international trade affects capital accumulation. We calibrate the model for 93 countries and examine transition paths between steady-states after a permanent, uniform trade liberalization across countries. Our model allows for both the relative price of investment and the investment rate to depend on the world distribution of trade barriers. Accounting for transitional dynamics, welfare gains are about 60 percent of those measured by comparing only the steady-states, and three times larger than those with no capital accumulation. We extend the model to incorporate adjustment costs to capital accumulation and endogenous trade imbalances. Relative to the model with balanced trade, the gains from trade increase more for small countries because they accumulate capital at faster rates by running trade deficits in the short run.

Keywords: Welfare gains, dynamics, capital accumulation, trade imbalances

JEL Classification: E22, F11, F62

Suggested Citation

Ravikumar, B. and Santacreu, Ana Maria Maria and Sposi, Michael, Capital Accumulation and Dynamic Gains from Trade (2017-01-01). Globalization and Monetary Policy Institute Working Paper No. 296. Available at SSRN: https://ssrn.com/abstract=2906648 or http://dx.doi.org/10.24149/gwp296r2

B. Ravikumar (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Ana Maria Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Michael Sposi

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
27
Abstract Views
269
PlumX Metrics