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From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity

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  • Maria Bas
  • Thierry Mayer
  • Mathias Thoenig

Abstract

Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into an unique elasticity, estimable with a gravity equation. This paper provides a theory-based method for quantifying country-pair specific elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000-2006 period, we are able to estimate all the components of the dyadic elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then assembled under theoretical guidance to calculate bilateral aggregate elasticities over the whole set of destinations, and their decomposition into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of non-constant macro trade elasticities.

Suggested Citation

  • Maria Bas & Thierry Mayer & Mathias Thoenig, 2015. "From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity," Working Papers 2015-07, CEPII research center.
  • Handle: RePEc:cii:cepidt:2015-07
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    Citations

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    Cited by:

    1. Keith Head & Thierry Mayer, 2015. "Brands in Motion: How frictions shape multinational production," Working Papers 2015-26, CEPII research center.
    2. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    3. Thierry Mayer & Vincent Vicard & Soledad Zignago, 2018. "The Cost of Non-Europe, Revisited," Working papers 673, Banque de France.
    4. Stephen J. Redding & David E. Weinstein, 2017. "Aggregating from Micro to Macro Patterns of Trade," NBER Working Papers 24051, National Bureau of Economic Research, Inc.
    5. M. Bussière & G. Gaulier & W. Steingress, 2016. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Working papers 608, Banque de France.
    6. Nigai, Sergey, 2017. "A tale of two tails: Productivity distribution and the gains from trade," Journal of International Economics, Elsevier, vol. 104(C), pages 44-62.
    7. Fontagné, Lionel & Orefice, Gianluca, 2018. "Let’s try next door: Technical Barriers to Trade and multi-destination firms," European Economic Review, Elsevier, vol. 101(C), pages 643-663.
    8. Head, Keith & Mayer, Thierry, 2015. "Brands in Motion: How frictions shape multinational production," CEPR Discussion Papers 10797, C.E.P.R. Discussion Papers.
    9. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and economic performance: A view from trade," Economics Working Papers 1604, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2018.
    10. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    11. Olga A. Timoshenko & Erick Sager, "undated". "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    12. Pamela Bombarda & Stefania Marcassa, 2017. "Welfare and Trade Margins with Multinational Production," THEMA Working Papers 2017-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    13. Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Working Papers 2017-03, CEPII research center.
    14. repec:spr:weltar:v:154:y:2018:i:1:d:10.1007_s10290-017-0295-z is not listed on IDEAS
    15. Marco Bee & Stefano Schiavo, 2018. "Powerless: gains from trade when firm productivity is not Pareto distributed," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 15-45, February.

    More about this item

    Keywords

    trade elasticity; firm-level data; heterogeneity; gravity; Pareto; log-normal;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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