Working Paper: NBER ID: w3147
Authors: Richard Baldwin
Abstract: Productive factors such as human and physical capital are accumulated and trade can affect the steady-state levels of such factors. Consequently, trade liberalization will have dynamic effects on output and welfare as the economy moves to its new steady state, in addition to its usual static effects. The output impact of this dynamic effect is measurable and appears to be quite large. The welfare impact of this dynamic effect is also measurable. The size of this dynamic gain from trade depends on the importance of external scale economies.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade Liberalization (F13) | Marginal Productivity of Capital (D24) |
| Marginal Productivity of Capital (D24) | Steady-State Capital-Labor Ratio (F16) |
| Steady-State Capital-Labor Ratio (F16) | Output (Y10) |
| Trade Liberalization (F13) | Output (Y10) |
| Output (Y10) | Welfare Gain (D69) |