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Trade Flows, Multilateral Resistance, and Firm Heterogeneity

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  • Alberto Behar

    (International Monetery Fund)

  • Benjamin D. Nelson

    (Bank of England)

Abstract

Anderson and van Wincoop (2003) showed the importance of multilateral resistance general equilibrium effects in estimating the response of trade flows to trade costs. We integrate this into Helpman, Melitz, and Rubinstein's (2008) extension of Anderson and van Wincoop's framework, which allows for firm heterogeneity, in order to quantify the different margins of adjustment. For bilateral trade cost changes, the general equilibrium effects are small. Surprisingly, most country pairs reduce their trade after a multilateral fall in trade costs. The global trade response to lower costs is positive, amplified by firm entry, but significantly dampened by multilateral resistance. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Alberto Behar & Benjamin D. Nelson, 2014. "Trade Flows, Multilateral Resistance, and Firm Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 96(3), pages 538-549, July.
    • Handle: RePEc:tpr:restat:v:96:y:2014:i:3:p:538-549
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    More about this item

    Keywords

    trade flows; trade costs; firm heterogeneity; multilateral resistance;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade

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