GAINS FROM TRADE WITH VARIABLE TRADE ELASTICITIES

Abstract We measure gains from trade in multisector economies with nonhomothetic preferences where changes in trade costs generate reallocation of expenditure across sectors. We show how to measure the trade elasticity and how it relates to welfare. In this environment, the trade elasticity now varies both across countries and with levels of trade costs. In an application, we find that the trade elasticity varies substantially across countries …