Generalized Welfare Gains from Trade Formulas
This paper develops a novel approach to derive welfare gains from trade formulas applicable to a wide range of trade models. First, I derive a general formula for classical trade models based on the formula established by Arkolakis et al. (2012), henceforth referred to as “ACR.” This new formula incorporates a nuanced consideration of the production share and elasticity of substitution between outputs, offering a refined formula for assessing the welfare gains associated with movements along the production possibility frontier. Second, I use this new approach to generalize the ACR formula. This new derivation broadens the applicability of the ACR formula, extending its relevance to a broader class of trade models than previously considered.