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Trade Models, Trade Elasticities, and the Gains from Trade

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  • Ina Simonovska
  • Michael E. Waugh

Abstract

We argue that the welfare gains from trade in new models with micro-level margins exceed those in frameworks without these margins. Theoretically, we show that for fixed trade elasticity, different models predict identical trade flows, but different patterns of micro-level price variation. Thus, given data on trade flows and micro-level prices, different models have different implied trade elasticities and welfare gains. Empirically, models with extensive or variable mark-up margins yield significantly larger welfare gains. The results are robust to incorporating into the estimation moment conditions that use trade-flow and tariff data, which imply a common trade elasticity across models.

Suggested Citation

  • Ina Simonovska & Michael E. Waugh, 2014. "Trade Models, Trade Elasticities, and the Gains from Trade," NBER Working Papers 20495, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20495
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    More about this item

    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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