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.
KeywordsRicardoGlobalizationGains from TradeNon-Convexity
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