The social footprint of globalisation: towards the introduction of strategic industries in quantitative trade models
Italo Colantone ((Bocconi University, Baffi-Carefin Research Center, CESifo and Fondazione Eni Enrico Mattei)); G. Ottaviano (Bocconi University, Baffi-Carefin, IGIER and CEPR); P. Stanig (Yale University, NUS, Bocconi University and Dondena)
F11, F12, F17, F15, F62
Globalization, quantitative trade models, trade liberalisation, market structure, externalities, strategic industries
Taylor & Francis Online
Spatial Economic Analysis, 13 December 2023
We argue that our understanding of industrial policy in the presence of ‘strategic’ industries that exert positive externalities on the national economy may benefit from an extension of quantitative general equilibrium trade models making the extent and pattern of trade-induced reallocations more salient. To make these features relevant for national welfare, we introduce the notion of the ‘social footprint’ of globalisation as the result of suboptimal trade-induced structural transformation in the presence of externalities. For proof of concept, we use simple workhorse models featuring two countries and two industries (only one of which is ‘strategic’) to highlight the role of the ‘scale elasticity’ of the strategic industry and the consequences of the most common assumptions on market structure in quantitative trade analyses.