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Misallocation Under Trade Liberalization


Misallocation Under Trade Liberalization


Time: 3:00pm-5:00pm, Nov. 21st, 2018

Venue: Room 359S, Overseas Exchange Center, Peking University

Speaker: Dan Lv (Department of Economics, University of Rochester)



What is the impact of trade liberalization on economies with sizeable distortions? A Melitz model incorporating firm-level wedges shows that trade liberalization can exacerbate rather than improve resource allocation, causing a decline rather than a rise in TFP. We derive a theoretical decomposition of the various channels through which distortions impact the effects of trade, and show that trade can engender welfare losses. A quantitative assessment using Chinese manufacturing data shows that there is a TFP loss in association with trade liberalization, and a significantly smaller gains to trade than what is implied by standard formulations. Moreover, using only aggregate statistics to measure gains to trade apropos the ACR formula would lead to markedly different predictions.




Dan Lv is currently an Assistant Professor in the Department of Economics at the University of Rochester. Professor Lv’s research interests are in macroeconomics, international trade and growth. Her work focuses on understanding how trade liberalization affects the firm performance, market selection, and resource misallocation. She also studies agglomeration externalities and industry concentration. Professor Lv was a Visiting Research Fellow in the Department of Economics at Princeton University. She received her Ph.D. Degree in Economics from the University of Chicago in 2011.