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

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  • Maria Bas

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Thierry Mayer

    () (ECON - Département d'économie - Sciences Po)

  • Mathias Thoenig

    (CUI - Centre Universitaire d'Informatique - UNIGE - Université de Genève)

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, 2017. "From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01592899, HAL.
  • Handle: RePEc:hal:cesptp:hal-01592899
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01592899
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    Cited by:

    1. M. Bussière & G. Gaulier & W. Steingress, 2016. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Working papers 608, Banque de France.
    2. 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.
    3. Keith Head & Thierry Mayer, 2015. "Brands in Motion: How frictions shape multinational production," Working Papers 2015-26, CEPII research center.
    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. 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.
    6. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A view from Trade," Working Papers 1034, Barcelona Graduate School of Economics.
    7. Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01470696, HAL.
    8. 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.
    9. 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.
    10. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    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. Mayer, Thierry & Vicard, Vincent & Zignago, Soledad, 2018. "The Cost of Non-Europe, Revisited," CEPR Discussion Papers 12844, C.E.P.R. Discussion Papers.
    13. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," 2018 Meeting Papers 627, Society for Economic Dynamics.
    14. 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.

    More about this item

    Keywords

    Heterogeneity; Gravity; Firm-level data; Log-normal; Pareto; Trade elasticity;

    JEL classification:

    • F1 - International Economics - - Trade

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