Globalizationandindividualgainsfromtrade

We analyzetheimpactofglobalizationonindividualgainsfromtradeinageneral equilibriummodelofmonopolisticcompetitionfeaturingproductdiversity,pro- competitiveeffectsandincomeheterogeneitybetweenandwithincountries.Although trade reducesmarkupsinbothcountriesinourframework,itsimpactonvarietydepends on theirrelativepositionintheworldincomedistribution:productdiversityinthelower income countryalwaysexpands,whilethatinthehigherincomecountrymayshrink. When thelatteroccurs,thericherconsumersinthehigherincomecountrymaylose from tradebecausetherelativeimportanceofvarietyversusquantityincreaseswith income.UsingdataonGDPpercapitaandpopulation,aswellasontheU.S.income distribution,ourtheoreticalresultsareillustratedintwodifferentcontexts:the hypotheticalbilateraltradeliberalizationbetweentheU.S.and188countries;andthe historicalsequenceofU.S.freetradeagreementssince1985