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Gains from Trade: Does Sectoral Heterogeneity Matter?

Author

Listed:
  • Rahul Giri

    (International Monetary Fund)

  • Kei-Mu Yi

    (University of Houston
    Federal Reserve Bank of Dallas
    NBER)

  • Hakan Yilmazkuday

    (Department of Economics, Florida International University)

Abstract

This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs. We estimate the sectoral trade elasticity with the Simonovska and Waugh (2014) simulated method of moments estimator and micro price data. Our estimates range from 2.97 to 8.94 across sectors. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We remove one or two sources of sectoral heterogeneity at a time, and compare the gains from trade to the benchmark model. We also compare an aggregate model with a single elasticity to the benchmark model. Our main result from these counterfactual exercises is that sectoral heterogeneity does not always lead to an increase in the gains from trade, which is consistent with the theory.

Suggested Citation

  • Rahul Giri & Kei-Mu Yi & Hakan Yilmazkuday, 2021. "Gains from Trade: Does Sectoral Heterogeneity Matter?," Working Papers 2103, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2103
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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