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Unlocking new methods to estimate country-specific trade costs and trade elasticities

Author

Listed:
  • Freeman, Rebecca

    (Bank of England)

  • Larch, Mario

    (University of Bayreuth)

  • Theodorakopoulos, Angelos

    (University of Oxford)

  • Yotov, Yoto

    (Drexel University)

Abstract

We propose new methods to identify the full impact of country-specific characteristics on bilateral trade flows within the framework of ‘the new quantitative trade model’. We complement theory with a simple two-stage estimating procedure, and offer a proof of concept by quantifying the impact of country-specific research and development expenditure on trade. Results suggest a positive relationship overall, but a larger impact on international (versus domestic) trade. Further, our methodology allows us to recover trade elasticity estimates without the need for price/tariff data. Bringing this to the sectoral level, we obtain estimates of the trade elasticity for manufacturing, services, and tradable versus non-tradable sectors.

Suggested Citation

  • Freeman, Rebecca & Larch, Mario & Theodorakopoulos, Angelos & Yotov, Yoto, 2021. "Unlocking new methods to estimate country-specific trade costs and trade elasticities," Bank of England working papers 951, Bank of England.
    • Handle: RePEc:boe:boeewp:0951
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    Cited by:

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    3. Lisack, Noemie & Lloyd, Simon & Sajedi, Rana, 2022. "Aggregation across each nation: aggregator choice and macroeconomic dynamics," Bank of England working papers 982, Bank of England.
    4. Ina C. Jäkel & Søren Østervig & Erdal Yalcin, 2022. "The Effects of Heterogeneous Sanctions on Exporting Firms —Evidence from Denmark," CESifo Working Paper Series 10086, CESifo.

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    More about this item

    Keywords

    Structural gravity; country-specific trade costs; trade elasticity; elasticity of substitution R&D; trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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