Goods trade, factor mobility and welfare

We develop a quantitative spatial model that incorporates a rich geography of trade costs and labor mobility with heterogeneous worker preferences across locations. We provide comparative statics for the unique equilibrium with respect to the primitives of the model. We show how the model can be used to undertake counterfactuals using only data in an initial equilibrium. In these counterfactuals, the welfare gains from trade depend on changes in both domestic trade shares and reallocations of population across locations. We show that factor mobility introduces quantitatively relevant differences in the counterfactual predictions of constant and increasing returns to scale models.