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Transitional Growth and Trade with Frictions: A Structural Estimation Framework

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  • James E Anderson
  • Mario Larch
  • Yoto V Yotov

Abstract

We build and estimate a structural model of transitional growth and trade in a many-country world. The gravity model of trade is combined with a capital accumulation mechanism driving transition between steady states. Trade affects growth through changes in consumer and producer prices. Simultaneously, capital accumulation affects trade directly through changes in country size and indirectly through changes in the incidence of trade costs. Theory maps to an econometric system that identifies the parameters of the model and establishes causal links between trade, capital accumulation and income. Counterfactual trade liberalisation magnifies static gains by a dynamic path multiplier of 1.8.

Suggested Citation

  • James E Anderson & Mario Larch & Yoto V Yotov, 2020. "Transitional Growth and Trade with Frictions: A Structural Estimation Framework," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1583-1607.
    • Handle: RePEc:oup:econjl:v:130:y:2020:i:630:p:1583-1607.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa020
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