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Aggregating From Micro to Macro Patterns of Trade

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  • Stephen J. Redding
  • David E. Weinstein

Abstract

We develop a new framework for aggregating from micro to macro patterns of trade. We derive price indexes that determine comparative advantage across countries and sectors and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average demand/quality and the dispersion of demand/quality-adjusted prices, and are only weakly related to standard empirical measures of average prices, thereby providing insight for elasticity puzzles. Of the cross-section (time-series) variation in comparative advantage, 50 (90) percent is accounted for by variety and average demand/quality, with average prices contributing less than 10 percent.

Suggested Citation

  • Stephen J. Redding & David E. Weinstein, 2018. "Aggregating From Micro to Macro Patterns of Trade," Working Papers 18-10, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:18-10
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    2. Nelson Lind & Natalia Ramondo, 2023. "Trade with Correlation," American Economic Review, American Economic Association, vol. 113(2), pages 317-353, February.
    3. Kirill Borusyak & Xavier Jaravel, 2018. "The Distributional Effects of Trade: Theory and Evidence from the United States," 2018 Meeting Papers 284, Society for Economic Dynamics.
    4. Tomoya Mori & Jens Wrona, 2021. "Centrality Bias in Inter-city Trade," KIER Working Papers 1056, Kyoto University, Institute of Economic Research.
    5. Piveteau, Paul & Smagghue, Gabriel, 2019. "Estimating firm product quality using trade data," Journal of International Economics, Elsevier, vol. 118(C), pages 217-232.
    6. Hottman, Colin J. & Monarch, Ryan, 2020. "A matter of taste: Estimating import price inflation across U.S. income groups," Journal of International Economics, Elsevier, vol. 127(C).
    7. Gaulier, Guillaume & Sztulman, Aude & Ünal, Deniz, 2020. "Are global value chains receding? The jury is still out. Key findings from the analysis of deflated world trade in parts and components," International Economics, Elsevier, vol. 161(C), pages 219-236.
    8. Colin J. Hottman & Ryan Monarch, 2023. "Who’s Most Exposed to International Shocks? Estimating Differences in Import Price Sensitivity across U.S. Demographic Groups," Working Papers 23-13, Center for Economic Studies, U.S. Census Bureau.
    9. Benguria, Felipe, 2021. "The matching and sorting of exporting and importing firms: Theory and evidence," Journal of International Economics, Elsevier, vol. 131(C).
    10. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2019. "The Impact of the 2018 Tariffs on Prices and Welfare," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 187-210, Fall.
    11. Clemens C. Struck, 2017. "On the Interaction of Growth, Trade and International Macroeconomics," Working Papers 201724, School of Economics, University College Dublin.
    12. C.J. Krizan & James Tybout & Zi Wang & Yingyan Zhao, 2020. "Are Customs Records Consistent Across Countries? Evidence from the U.S. and Colombia," Working Papers 20-11, Center for Economic Studies, U.S. Census Bureau.
    13. Monarch, Ryan & Schmidt-Eisenlohr, Tim, 2023. "Longevity and the value of trade relationships," Journal of International Economics, Elsevier, vol. 145(C).

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    More about this item

    Keywords

    comparative advantage; trade; prices; quality; variety;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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