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Dr. Keyu Jin is an associate professor of Economics at the London school of Economics. She is from Beijing, China, and holds a B.A., M.A. and Phd from Harvard University.
Her research is on international economics - such as why capital flows from poor to rich countries, how the global implications of U.S. monetary and fiscal policies have changed; as well as on how the rise of China impacts the global economy, from several perspectives - trade, capital flows, global interest rates and saving, demographics, productivity and technology.
Dr. Keyu’s book, The New China Playbook, is available now.
Misallocation Under Trade Liberalization
This paper formalizes a classic idea that in second-best environments trade can induce welfare losses. In a framework that incorporates distortion wedges into a Melitz model, we analyze a channel in which trade can reduce allocative efficiency arising from the reallocation of resources. A key aggregate statistics that captures this negative selection is the gap between input and output shares. We derive sufficient conditions for reallocation loss due to trade under important distributions. Using Chinese manufacturing data, we show that this reallocation term is significantly negative, largely offsetting conventional gains to trade.
Yan Bai University of Rochester NBER
Keyu Jin LSE CEPR
Dan Lu * The Chinese University of Hong Kong
Abstract
This paper formalizes a classic idea that in second-best environments trade can induce welfare losses. In a framework that incorporates distortion wedges into a Melitz model, we analyze a channel in which trade can reduce allocative efficiency arising from the reallocation of resources. A key aggregate statistics that captures this negative selection is the gap between input and output shares. We derive sufficient conditions for reallocation loss due to trade under important distributions. Using Chinese manufacturing data, we show that this reallocation term is significantly negative, largely offsetting conventional gains to trade.
Keywords: wedges and distortions, misallocation, trade liberalization, gains from trade JEL classification: E23 F12 F14 F63 L25 O47