Estimating the Effects of Non-discriminatory Trade Policies within Structural Gravity Models

We propose a simple method to identify the effects of unilateral and non-discriminatory trade policies on bilateral trade within a theoretically-consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra-national trade flows. The use of intra-national sales allows identification of the effects of non-discriminatory trade policies such as most favored nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of MFN tariffs and "Time to Export" as representative non-discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country-specific characteristics as well as any non-trade policies.