Data and Code for: Profits, Scale Economies, and the Gains from Trade and Industrial Policy

Principal Investigator(s): View help for Principal Investigator(s) Ahmad Lashkaripour, Indiana University; Volodymyr Lugovskyy, Indiana University

Version: View help for Version V1

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Matlab			08/10/2023 11:24:AM
Stata			08/10/2023 11:24:AM
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Project Citation:

Lashkaripour, Ahmad, and Lugovskyy, Volodymyr. Data and Code for: Profits, Scale Economies, and the Gains from Trade and Industrial Policy. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-09-14. https://doi.org/10.3886/E193218V1

Project Description

Summary:

This paper examines the efficacy of second-best trade restrictions at correcting misallocation in the domestic economy. To this end, we derive sufficient statistics formulas for first-best and second- best optimal policies in an important class of quantitative trade models where misallocation stems from scale economies or profit- generating markups. We then estimate the essential parameters of the model and apply our optimal policy formulas to quantify the ex-ante gains from trade and industrial policy among major countries. Our estimates reveal (i) that standalone trade policy measures are remarkably ineffective at correcting misallocation; (ii) unilateral adoption of corrective industrial policies is also ineffective as it leads to immiserizing growth; but (iii) industrial policies coordinated internationally via deep agreements are more transformative than any unilateral policy alternative.

Scope of Project

JEL Classification:
      F10 Trade: General
      F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
      F13 Trade Policy; International Trade Organizations
      F14 Empirical Studies of Trade
      L52 Industrial Policy; Sectoral Planning Methods
      O19 International Linkages to Development; Role of International Organizations

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Published Versions

V1 [2023-09-14]

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