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Dynamic Adjustment to Trade Shocks

Author

Listed:
  • Junyuan Chen
  • Carlos Góes
  • Marc-Andreas Muendler
  • Fabian Trottner

Abstract

Global trade flows and supply chains adjust gradually. Empirical estimates of the trade elasticity for the short run are a fraction of those for the long run and suggest that trade is subject to substantive dynamic frictions. We develop a tractable framework that provides microfoundations for trade adjustment and rationalizes estimation of a time-varying trade elasticity. The model features forward-looking firms facing sticky sourcing choices and nests a version of the Eaton-Kortum model as a limiting long-run case. We calibrate the model and quantify the impacts of two events: the 2004 EU Eastern enlargement (an anticipated change) and the 2018 US-China trade war (an arguably unanticipated change). Our findings suggest that sourcing frictions and anticipation effects alter the time pattern of specialization, can result in short-term welfare losses but long-term gains, and can drive marked trade adjustments before anticipated shocks occur.

Suggested Citation

  • Junyuan Chen & Carlos Góes & Marc-Andreas Muendler & Fabian Trottner, 2026. "Dynamic Adjustment to Trade Shocks," CESifo Working Paper Series 12570, CESifo.
    • Handle: RePEc:ces:ceswps:_12570
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    References listed on IDEAS

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    1. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 289-336.
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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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