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.

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13 December 2023

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Spatial Economic Analysis 19(3) , pp.345-363, 2023

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DOI: 10.1080/17421772.2023.2267613

https://www.tandfonline.com/doi/full/10.1080/17421772.2023.2267613?scroll=top&needAccess=true

This Journal article is published under the centre's Trade programme.