Commodity Trade Matters

87 Pages Posted: 17 Sep 2018

See all articles by Thibault Fally

Thibault Fally

UC Berkeley - ARE Department

James Sayre

University of California, Berkeley

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Date Written: August 2018

Abstract

Primary commodities are used as inputs into all production processes, yet they account for approximately 16 percent of world trade. Despite their share in trade, we show that the aggregate gains from trade are largely understated if we ignore key features of commodities: low price elasticities of demand (difficulty in finding substitutes), low price elasticities of supply, and high dispersion of natural resources across countries. We develop a general-equilibrium model of consumption, production, and input-output linkages that explicitly accounts for these features. Our simulations confirm that the gains from trade are significantly larger, especially when considering large trade cost changes.

Keywords: Gains from trade, Multi-stage Production, Primary commodities

JEL Classification: F10, O13

Suggested Citation

Fally, Thibault and Sayre, James, Commodity Trade Matters (August 2018). CEPR Discussion Paper No. DP13132, Available at SSRN: https://ssrn.com/abstract=3244504

Thibault Fally (Contact Author)

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

James Sayre

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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