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The double EMG distribution and trade elasticities

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  • Erick Sager
  • Olga A. Timoshenko

Abstract

Using Brazilian export data that, unlike many trade data sets, have a full record of small export sales, this paper reconsiders trade elasticities and the welfare gains from trade. Using the Brazilian data, this paper provides novel evidence on the properties of the distributions of log‐export sales and shows that the double exponentially modified Gaussian (EMG) distribution parsimoniously captures these properties. Using the double EMG distribution in a standard monopolistic competition model of trade, this paper demonstrates that data truncation, which is prevalent in many data sets, leads to an upward bias in measuring the partial elasticity of trade with respect to variable trade costs. This bias subsequently leads to the underestimation of the gains from trade by 1% to 9% depending on the extent of data truncation, a range that is commensurate with typical economic growth and large booms. Double distribution gaussienne modifiée de façon exponentielle (EMG) et élasticités commerciales. En s'appuyant sur les données relatives aux exportations brésiliennes consignant, contrairement à de nombreux autres ensembles de données, tous les volumes de ventes à l'exportation y compris les plus petits, cet article réexamine l'élasticité des échanges et les bienfaits sociaux en découlant. Grâce à ces données, l'article offre un nouvel éclairage sur les propriétés des distributions relatives aux ventes à l'exportation consignées, et montre que la double distribution gaussienne modifiée de façon exponentielle (EMG) ne reflète que partiellement ces propriétés. En utilisant cette double distribution dans un modèle commercial standard caractérisé par une concurrence monopolistique, cet article démontre que la troncature des données, fréquente dans de nombreux ensembles de données, génère des erreurs systématiques par excès lorsque l'on mesure l'élasticité partielle des échanges par rapport aux coûts commerciaux variables. Conséquemment, ce biais conduit à une sous‐estimation des gains commerciaux de 1 à 9 %, dépendamment de l'ampleur de la troncature des données, et comparable à une croissance économique typique ou en forte expansion.

Suggested Citation

  • Erick Sager & Olga A. Timoshenko, 2019. "The double EMG distribution and trade elasticities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(4), pages 1523-1557, November.
  • Handle: RePEc:wly:canjec:v:52:y:2019:i:4:p:1523-1557
    DOI: 10.1111/caje.12412
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    References listed on IDEAS

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    Cited by:

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    2. Dan Cao & Erick Sager & Henry Hyatt & Toshihiko Mukoyama, 2019. "Firm Growth through New Establishments," 2019 Meeting Papers 1484, Society for Economic Dynamics.
    3. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
    4. Dewitte, Ruben, 2020. "From Heavy-Tailed Micro to Macro: on the characterization of firm-level heterogeneity and its aggregation properties," MPRA Paper 103170, University Library of Munich, Germany.
    5. Doungdao Mahakitsiri & Wisarut Suwanprasert, 2020. "Understanding the Bimodality of the Export Intensity Distribution in Thailand," PIER Discussion Papers 139, Puey Ungphakorn Institute for Economic Research.
    6. Luca Macedoni & Ariel Weinberger, 2021. "Quality Misallocation, Trade, and Regulations," CESifo Working Paper Series 9041, CESifo.

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