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'Once-Off' And Continuing Gains From Trade, M. Scott Taylor

M. Scott Taylor

Most Economists are familiar with the static or once-off welfare gains created by opening an economy to trade. Much less is known about how the resource reallocations necessitated by this move affect long-run growth, and hence whether they provide dynamic or continuing welfare gains in future periods. This paper employs a dynamic Ricardian trade model to provide a decomposition of the gains from trade into "once-off" and continuing categories. In one version of the model, trade is always welfare enhancing; in the other, "once-off" losses may occur alongside dynamic gains. In both versions the magnitude of the once-off and continuing …