Author(s)

Jean-Paul Chavas, Taylor Hall

University of Wisconsin, Madison, WI, USA.

This paper explores the aggregate gains from trade with a focus on the role of non-convexity. After reviewing the example presented by Ricardo, we develop a general equilibrium model of trade under non-convex technologies and heterogeneous firms. The model is used to evaluate aggregate efficiency, with a focus on the case where trade restrictions are the only source of inefficiency. The analysis allows for non-linear pricing which becomes an integral part of efficiency under non-convex technologies. We establish bounds on the gains from trade. We show that the gains from trade are non-negative and that they tend to be small under convexity but can become large under non-convexity. This indicates that the search for larger gains from trade needs to be associated with non-convex technologies. Implications of our analysis for the benefits of globalization are discussed.

Ricardo, Globalization, Gains from Trade, Non-Convexity

Chavas, J. and Hall, T. (2017) Ricardo Revisited: Benefits from Trade and the Role of Non-Convex Technologies. Theoretical Economics Letters, 7, 263-293. doi: 10.4236/tel.2017.72022.