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Gains from trade: Does sectoral heterogeneity matter?

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  • Giri, Rahul
  • Yi, Kei-Mu
  • Yilmazkuday, Hakan

Abstract

This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs. We estimate the sectoral trade elasticity with the Simonovska and Waugh (2014) simulated method of moments estimator and micro price data. Our estimates range from 2.97 to 8.94 across sectors. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We remove one or two sources of sectoral heterogeneity at a time, and compare the gains from trade to the benchmark model. We also compare an aggregate model with a single elasticity to the benchmark model. Our main result from these counterfactual exercises is that sectoral heterogeneity does not always lead to an increase in the gains from trade, which is consistent with the theory.

Suggested Citation

  • Giri, Rahul & Yi, Kei-Mu & Yilmazkuday, Hakan, 2021. "Gains from trade: Does sectoral heterogeneity matter?," Journal of International Economics, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:inecon:v:129:y:2021:i:c:s0022199621000040
    DOI: 10.1016/j.jinteco.2021.103429
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    Cited by:

    1. Guillaume Daudin & Jérôme Héricourt & Lise Patureau, 2022. "International transport costs: new findings from modeling additive costs [Inventories, lumpy trade, and large devaluations]," Journal of Economic Geography, Oxford University Press, vol. 22(5), pages 989-1044.
    2. Joseph B. Steinberg, 2020. "The macroeconomic impact of NAFTA termination," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 821-865, May.
    3. Joseph S Shapiro, 2021. "The Environmental Bias of Trade Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 831-886.
    4. Christoph E. Boehm & Andrei A. Levchenko & Nitya Pandalai-Nayar, 2023. "The Long and Short (Run) of Trade Elasticities," American Economic Review, American Economic Association, vol. 113(4), pages 861-905, April.
    5. Bolatto, Stefano & Moramarco, Graziano, 2023. "Gains from trade and their quantification: Does sectoral disaggregation matter?," International Economics, Elsevier, vol. 174(C), pages 44-68.
    6. Ana Maria Santacreu & Jing Zhang & Michael Sposi, 2019. "A Quantitative Analysis of Tariffs across U.S. States," 2019 Meeting Papers 259, Society for Economic Dynamics.
    7. Giri, Rahul, 2012. "Local costs of distribution, international trade costs and micro evidence on the law of one price," Journal of International Economics, Elsevier, vol. 86(1), pages 82-100.
    8. Duan, Yuwan & Ji, Ting & Lu, Yi & Wang, Siying, 2021. "Environmental regulations and international trade: A quantitative economic analysis of world pollution emissions," Journal of Public Economics, Elsevier, vol. 203(C).
    9. Lionel Fontagné & Houssein Guimbard & Gianluca Orefice, 2019. "Product-Level Trade Elasticities," Working Papers 2019-17, CEPII research center.
    10. Lionel Fontagné & Houssein Guimbard & Gianluca Orefice, 2020. "Product-Level Trade Elasticities: Worth Weighting For," Working Papers DT/2020/08, DIAL (Développement, Institutions et Mondialisation).
    11. Dominick Bartelme & Arnaud Costinot & Dave Donaldson & Andres Rodriguez-Clare, "undated". "The Textbook Case for Industrial Policy: Theory Meets Data," Working Papers 675, Research Seminar in International Economics, University of Michigan.
    12. Fontagné, Lionel & Guimbard, Houssein & Orefice, Gianluca, 2022. "Tariff-based product-level trade elasticities," Journal of International Economics, Elsevier, vol. 137(C).
    13. Dongxu Chen & Xiaoying Chang & Tao Hong & Tao Ma, 2023. "Domestic Regional Synergy in Achieving National Climate Goals—The Role of Comparative Advantage in Emission Reduction," Land, MDPI, vol. 12(9), pages 1-23, September.
    14. Yulin Hou & Yun Wang & Hakan Yilmazkuday, 2023. "Gravity channels in trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 32(1), pages 37-65, January.
    15. Ana Maria Santacreu & Michael Sposi & Jing Zhang, 2021. "What Determines State Heterogeneity in Response to US Tariff Changes?," Working Papers 2021-007, Federal Reserve Bank of St. Louis, revised 08 Mar 2023.
    16. Pol Antràs & Davin Chor, 2021. "Global Value Chains," NBER Working Papers 28549, National Bureau of Economic Research, Inc.
    17. Guillaume Daudin & Jérôme Héricourt & Lise Patureau, 2022. "International Transport costs: New Findings from modeling additive cost," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03538476, HAL.

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    More about this item

    Keywords

    Gains from trade; Estimated trade elasticities; Simulated method of moments; Sectoral heterogeneity; International price dispersion; Multi-sector trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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