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Variety gains of trade integration in a heterogeneous firm model

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  • d'Artis Kancs
  • Jan Van Hove

Abstract

The present paper studies the variety gains from trade integration. Applying a heterogenous firm model we simulate trade liberalisation in alternative integration scenarios, where per unit trade costs, fixed trade costs and both of them are reduced. The main innovation of our paper is that we estimate the structural parameters of the underlying heterogenous firm model econometrically based on a unique firm level panel data, which contains more than 250,000 observations for exporting firms. Our results suggest that the variety gains from trade integration are substantial. Reducing trade barriers by 15 percent induces variety growth, as a result of which the gains from trade integration are up to 17 percent higher than classical trade models would predict.

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Bibliographic Info

Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_34.

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Date of creation: 14 Oct 2010
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Handle: RePEc:eei:rpaper:eeri_rp_2010_34

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Keywords: Variety gains; extensive margin; structural estimation; trade integration; heterogenous firms.;

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Cited by:
  1. James Anderson, 2001. "Migration, FDI, and the Margins of Trade," EERI Research Paper Series, Economics and Econometrics Research Institute (EERI), Brussels EERI_RP_2001_05, Economics and Econometrics Research Institute (EERI), Brussels.

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