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Trade Flows, Multilateral Resistance, and Firm Heterogeneity

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  • Alberto Behar
  • Benjamin D. Nelson

Abstract

We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form, such that the extensive margin is also affected by multilateral resistance. We develop Taylor approximated multilateral resistance terms with which to capture the comparative static effects of changes in trade costs. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries. However, if all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in most cases, despite the larger trade elasticities implied by firm heterogeneity. As a consequence, the world-wide trade response, though positive, is much lower.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/297.

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Length: 39
Date of creation: 20 Dec 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/297

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Keywords: Trade models; International trade; trade costs; trade flows; changes in trade; bilateral trade; exporter; world trade; multilateral trade; exporters; bilateral trade flows; trade data; elasticity of substitution; trade liberalization; trade barriers; exporting firms; elasticity of trade; trade liberalizations; trading partners; multilateral reduction; aggregate trade; multilateral trade liberalization; export volumes; preferential trade; regional trade; trade facilitation; average trade; transport costs; world economy; global trade; industry trade; increasing trade; trade effects; trade patterns; national borders; multilateral liberalization; multilateral liberalizations; impact of trade; liberalizing trade; bilateral trade data; economic integration; terms of trade;

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References

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  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  2. Tony Venables & Alberto Behar, 2010. "Transport Costs and International Trade," Economics Series Working Papers, University of Oxford, Department of Economics 488, University of Oxford, Department of Economics.
  3. James E. Anderson & Yoto V. Yotov, 2011. "Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002," Boston College Working Papers in Economics, Boston College Department of Economics 780, Boston College Department of Economics, revised 11 Oct 2011.
  4. Alberto Behar & Laia Cirera-i-Crivillé, 2013. "Does it Matter Who You Sign With? Comparing the Impacts of North–South and South–South Trade Agreements on Bilateral Trade," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 21(4), pages 765-782, 09.
  5. Bernard, Andrew & Jensen, J Bradford & Redding, Stephen J & Schott, Peter, 2007. "Firms in International Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6277, C.E.P.R. Discussion Papers.
  6. Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2010. "The Trade Effects of Endogenous Preferential Trade Agreements," SOI - Working Papers, Socioeconomic Institute - University of Zurich 1013, Socioeconomic Institute - University of Zurich.
  7. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
  8. Alberto Behar & Philip Manners & Benjamin D. Nelson, 2013. "Exports and International Logistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 75(6), pages 855-886, December.
  9. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," NBER Working Papers 14423, National Bureau of Economic Research, Inc.
  10. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation," Journal of International Economics, Elsevier, Elsevier, vol. 77(1), pages 77-85, February.
  11. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 615-23, June.
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Cited by:
  1. Alberto Behar, 2010. "The impact of North-South and South-South trade agreements on bilateral trade," Economics Series Working Papers, University of Oxford, Department of Economics CSAE WPS/2010-30, University of Oxford, Department of Economics.
  2. Alberto Behar & Philip Manners & Benjamin D. Nelson, 2013. "Exports and International Logistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 75(6), pages 855-886, December.
  3. Prehn, Sören & Brümmer, Bernhard & Thompson, Stanley R., 2010. "Payment decoupling and the intra-European calf trade," DARE Discussion Papers 1008, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).

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