The Gains from Trade Liberalization

15 Pages Posted: 1 Jun 2007

See all articles by Donald Brown

Donald Brown

Yale University - Cowles Foundation

T. N. Srinivasan

Yale University - Economic Growth Center; Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Date Written: June 2007

Abstract

We consider trade liberalization in a multilateral trade model, where countries have identical homothetic tastes but may have different constant returns to scale technologies that produce at least two goods from at least two factors. In this model, we derive the world prices after trade liberalization as the shadow prices for the convex optimization problem that determines Debreu's coefficient of resource utilization or CRU. We introduce the notion of a world equilibrium with transfers and show that the CRU defines a world equilibrium with transfers where all countries are better off in the free trade equilibrium, after trade liberalization, than they were in the distorted world equilibrium. In particular, after trade liberalization, the poor countries of the world are better off in the CRU world equilibrium with transfers than in the free trade world equilibrium without transfers.

Keywords: Standard trade model, Trade liberalization, Globalization, Coefficient of resource utilization

JEL Classification: D51, D58, D61, F11, F13

Suggested Citation

Brown, Donald J. and Srinivasan, T. N., The Gains from Trade Liberalization (June 2007). Yale Economics Department Working Paper No. 24. Available at SSRN: https://ssrn.com/abstract=990072

Donald J. Brown (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

T. N. Srinivasan

Yale University - Economic Growth Center ( email )

Box 208269
New Haven, CT 06520-8269
United States
203-432-3630 (Phone)
203-432-3635 (Fax)

Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Stanford, CA 94305
United States

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