The small open economy in a generalized gravity model

To provide sharp answers to basic questions in international trade, a standard approach is to focus on a small open economy (SOE). Whereas the classic tradition is to define a SOE as an economy that takes world prices as given, in the new trade literature it is defined instead as one that takes foreign-good prices and export demand schedules as given. We develop a gravity model that nests all its standard microfoundations and show how to take the limit so that an economy that becomes infinitesimally small behaves like a SOE. We then derive comparative statics and optimal policy for the SOE. Ignoring standard tax indeterminacies, optimal policy is characterized by export taxes and import tariffs equal to the (inverse) foreign demand and supply elasticities, respectively, and employment subsidies determined by the scale elasticity (under perfect competition) or markups (under monopolistic competition).

Authors

Institutions

Publication Details

Journal
Journal of International Economics
Published
2024-08-29
DOI
https://doi.org/10.1016/j.jinteco.2024.103997
Citations
8
Primary Topic
Economic Growth and Productivity
Type
article
Field-Weighted Citation Impact
9.03

Funders

Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

The small open economy in a generalized gravity model

Konstantin Kucheryavyy, Takumi Naito, Andrés Rodrı́guez-Clare, Svetlana Demidova
8 citations
Journal of International Economics
Economic Growth and Productivity
9.03
article

The small open economy in a generalized gravity model

Konstantin Kucheryavyy, Takumi Naito, Andrés Rodrı́guez-Clare, Svetlana Demidova
article en
8 citations

Abstract

To provide sharp answers to basic questions in international trade, a standard approach is to focus on a small open economy (SOE). Whereas the classic tradition is to define a SOE as an economy that takes world prices as given, in the new trade literature it is defined instead as one that takes foreign-good prices and export demand schedules as given. We develop a gravity model that nests all its standard microfoundations and show how to take the limit so that an economy that becomes infinitesimally small behaves like a SOE. We then derive comparative statics and optimal policy for the SOE. Ignoring standard tax indeterminacies, optimal policy is characterized by export taxes and import tariffs equal to the (inverse) foreign demand and supply elasticities, respectively, and employment subsidies determined by the scale elasticity (under perfect competition) or markups (under monopolistic competition).

Journal of International EconomicsVol. 152
Baruch College (US), Waseda University (JP), University of California, Berkeley (US), McMaster University (CA)
Social Sciences and Humanities Research Council of Canada, Japan Society for the Promotion of Science
Decent work and economic growth
Openalex Percentile: Top 3%
Economic Growth and Productivity
9.03
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.

The small open economy in a generalized gravity model — Konstantin Kucheryavyy, Takumi Naito, et al. · Journal of International Economics (2024) | TGRS Research Map | TGRS