Networks, Barriers, and Trade

Abstract

We study a non-parametric class of neoclassical trade models with international production networks and arbitrary distortions. We characterize their properties in terms of sufficient statistics useful for growth and welfare accounting as well as for counterfactuals. Using these sufficient statistics, we characterize societal losses from increases in tariffs and iceberg trade costs, and highlight the qualitative and quantitative importance of accounting for intermediates. Finally, we establish a formal duality between open and closed economies and use this to analytically quantify the gains from trade. Our results, which can be used to compute local and global counterfactuals, provide an analytical toolbox for studying large-scale trade models. Therefore, this paper helps bridge the gap between computation and theory.