Gains from trade and total factor productivity across economies

This article studies and measures the gains from openness and the e¤ects of international trade policy on productivity and output levels. It is assumed an economy with two tradable and non-storable intermediate goods, used in the production of a non-tradable \u85nal good. The solution of the static trade and factor allocation problem generates implicitly a mapping between factor endowments and \u85nal output, which is then used as an exogenous production function. We nd that for very poor economies gains from trade are sizable and in many cases more than 50 % of their per capita income. Most of these countries have high tari¤s but enjoy most of their potential gains from trade as their factor endowment is very di¤erent from that of the rich countries that they trade with. However, there are a group of low-to-middle income countries (e.g., India and Pakistan), with sizeable potential gains from trade, and for whom barriers to trade imply a signi cant loss.