Abstract
Trade expenditure functions are used to develop true trade price and quantity indices for multihousehold open economies with domestic distortions such as commodity or production taxes/subsidies, factor unemployment or exogenous factor price differentials. These indices are then used to analyse the welfare effects of changes in world market prices and/or the distortions. In contrast to earlier literature, we derive a set of novel globally valid necessary and sufficient conditions for gains from trade in the presence of the listed distortions. Novel sufficient conditions for welfare improvement which are readily measurable are also proven.
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