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Unlocking New Methods to Estimate Country-specific Trade Costs and Trade Elasticitie

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 R&D 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 Elasticitie," School of Economics Working Paper Series 2021-17, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2021_017
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    Cited by:

    1. Tibor Besedeš & Stefan Goldbach & Volker Nitsch, 2024. "Smart or smash? The effect of financial sanctions on trade in goods and services," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 223-251, February.
    2. 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.
    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. Swati Dhingra & Rebecca Freeman & Hanwei Huang, 2023. "The Impact of Non‐tariff Barriers on Trade and Welfare," Economica, London School of Economics and Political Science, vol. 90(357), pages 140-177, January.

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    More about this item

    Keywords

    Structural gravity; Country-specific trade costs; Trade elasticity; Elasticity of substitution; R&D and 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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