International Trade without CES: Estimating Translog Gravity
AbstractThis paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination countrys imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor.
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Bibliographic InfoPaper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 32.
Date of creation: 2010
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Translog; Gravity; Trade Costs; Distance; Trade Cost Elasticity;
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