Working Paper: NBER ID: w10426
Authors: Eckhard Janeba
Abstract: Economists emphasize the benefits from free trade due to international specialization, but typically have a narrow measure of what matters to individuals. Critics of free trade, by contrast, focus on the pattern of consumption in society and the nature of goods being consumed, but often fail to take into account the gains from specialization. This paper develops a new framework to study the effects of trade liberalization on cultural identity, which emerges as the result of the interaction of individual consumption choices, similar to a network externality. In a Ricardian model of international trade the paper shows that (i) trade is not Pareto inferior to autarky if the free trade equilibrium is unique, (ii) trade is not Pareto superior to autarky if the world is culturally diverse under free trade, but can be if the world is culturally homogenous, (iii) and when multiple free trade equilibria exist everybody in a country can lose from free trade if that country is culturally homogenous under autarky. Consumers of imported cultural goods tend to gain, while consumers of exported cultural goods tend to lose from trade liberalization.
Keywords: No keywords provided
JEL Codes: F02; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade is not Pareto inferior to autarky if the free trade equilibrium is unique (F10) | individual welfare can improve (I31) |
| trade is not Pareto superior to autarky when the world is culturally diverse (F12) | potential loss in cultural identity under free trade (F69) |
| individuals consuming the same cultural good experience identity loss when others deviate from the norm (Z13) | identity loss (J63) |
| trade can be Pareto superior to autarky when the world is culturally homogenous (F12) | eliminates identity loss (F11) |
| in a culturally homogenous country, all individuals can lose from trade if the other country is more efficient in producing the alternative cultural good (F11) | all individuals can lose from trade (F11) |