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Gains from trade and their quantification: Does sectoral disaggregation matter?

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  • Bolatto, Stefano
  • Moramarco, Graziano

Abstract

Multi-sector variants of gravity models typically predict much larger gains from trade (losses from protectionism) than their one-sector counterparts. This result –corroborated by several model-based quantification studies and commonly ascribed to Jensen’s inequality– has been recently questioned by studies that use micro price data to obtain sector-level estimates of the trade elasticity, a key parameter for the quantification of the gains. We reassess this issue by using a novel set of estimates of the trade elasticity at various levels of sectoral disaggregation, exploiting a recently proposed identification strategy based on tariffs. In our baseline 24-sector model specification, we find that the cross-country average size of the gains amounts to 12% and that this number is 21% larger than the one delivered by the one-sector specification. Overall, our results suggest that the effects of magnification of the gains associated with greater sectoral disaggregation (which we confirm to be mainly driven by cross-sector variation in trade elasticity) are significant, not negligible, but considerably smaller than generally quantified in the previous literature.

Suggested Citation

  • Bolatto, Stefano & Moramarco, Graziano, 2023. "Gains from trade and their quantification: Does sectoral disaggregation matter?," International Economics, Elsevier, vol. 174(C), pages 44-68.
  • Handle: RePEc:eee:inteco:v:174:y:2023:i:c:p:44-68
    DOI: 10.1016/j.inteco.2023.03.001
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    More about this item

    Keywords

    Gains from trade; Gravity models; Trade elasticity; Sectoral disaggregation;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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