2015-16 IGM Year in Review

24 ACCOUNTING FOR THE NEW GAINS FROM TRADE LIBERALIZATION We (Hsieh, Ossa, and coauthors Nicholas Li and Mu-Jeung Yang) measure the “new” gains from trade reaped by Canada as a result of the Canada-US Free Trade Agreement (CUSFTA). We think of the “new” gains from trade of a country as all welfare effects pertaining to changes in the set of firms serving that country as emphasized in the so-called “new” trade literature. To this end, we first develop an exact decomposition of the gains from trade that separates “traditional” and “new” gains. We then apply this decomposition using Canadian and US micro data and find that the “new” welfare effects of CUSFTA on Canada were negative. Chang-Tai Hsieh Phyllis and Irwin Winkelried Professor of Economics Ralph Ossa Associate Professor of Economics and Neubauer Family Faculty Fellow