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Estimating the welfare costs of autarky: a sufficient statistics approach

Esposito, Federico (2020): Estimating the welfare costs of autarky: a sufficient statistics approach.

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Abstract

This paper uses the Jeffersonian Embargo enacted in 1807 to estimate the welfare costs of autarky. I use an Armington trade model to compute the welfare losses using two sufficient statistics: the share of expenditures on domestic goods and the elasticity of substitution between domestic and imported goods. I use historical data from 1792 to 1807 to estimate the Armington elasticity, using import tariffs as instrument for relative prices. The empirical findings suggest welfare losses of 2.83-8.14% of real income.

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