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Structural Estimation of Gravity Models with Path-dependent Market Entry

  • Egger, Peter
  • Pfaffermayr, Michael

This paper develops a structural empirical general equilibrium model of aggregate bilateral trade with path dependence of country-pair level exporter status. Such path dependence is motivated through informational costs about serving a foreign market for first-time entry of (firms in) an export market versus continued export services to that market. We embed the theoretical model into a structural dynamic stochastic econometric model of bilateral selection into export markets and apply it to a data-set of aggregate bilateral exports among 120 countries over the period 1995-2004. In particular, we disentangle the role of changes in trade costs, in labor endowments, and in total factor productivity for trade, bilateral market entry, numbers of firms active, and welfare. Dynamic gains from trade differ significantly from static ones, and path-dependence in market entry cushions effects of impulses in fundamental variables that are detrimental to bilateral trade.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8458.

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Date of creation: Jun 2011
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Handle: RePEc:cpr:ceprdp:8458
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  1. Ricardo Hausmann & Dani Rodrik, 2002. "Economic Development as Self-Discovery," NBER Working Papers 8952, National Bureau of Economic Research, Inc.
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  13. Egger, Peter & Larch, Mario, 2011. "An assessment of the Europe agreements' effects on bilateral trade, GDP, and welfare," European Economic Review, Elsevier, vol. 55(2), pages 263-279, February.
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  25. Fossati, Sebastian, 2011. "Dating U.S. Business Cycles with Macro Factors," Working Papers 2011-5, University of Alberta, Department of Economics, revised 01 Feb 2012.
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