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Aggregating from Micro to Macro Patterns of Trade

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  • Stephen J. Redding
  • David E. Weinstein

Abstract

We develop a new framework for aggregating from micro to macro patterns of trade. We derive price indexes that determine comparative advantage across countries and sectors and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average demand/quality and the dispersion of demand/quality-adjusted prices, and are only weakly related to standard empirical measures of average prices, thereby providing insight for elasticity puzzles. Of the cross-section (time-series) variation in comparative advantage, 50 (90) percent is accounted for by variety and average demand/quality, with average prices contributing less than 10 percent.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:24051
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    References listed on IDEAS

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    1. Di Comite, Francesco & Thisse, Jacques-François & Vandenbussche, Hylke, 2014. "Verti-zontal differentiation in export markets," Journal of International Economics, Elsevier, vol. 93(1), pages 50-66.
    2. David Atkin & Benjamin Faber & Marco Gonzalez-Navarro, 2018. "Retail Globalization and Household Welfare: Evidence from Mexico," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 1-73.
    3. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    4. Hanson, Gordon H. & Lind, Nelson & Muendler, Marc-Andreas, 2015. "The Dynamics of Comparative Advantage," CAGE Online Working Paper Series 252, Competitive Advantage in the Global Economy (CAGE).
    5. Levchenko, Andrei A. & Zhang, Jing, 2016. "The evolution of comparative advantage: Measurement and welfare implications," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 96-111.
    6. Fariha Kamal & Ryan Monarch, 2018. "Identifying foreign suppliers in U.S. import data," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 117-139, February.
    7. Stephen J Redding & David E Weinstein, 2020. "Measuring Aggregate Price Indices with Taste Shocks: Theory and Evidence for CES Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 135(1), pages 503-560.
    8. Redding, Stephen J. & Weinstein, David E., 2016. "A unified approach to estimating demand and welfare," LSE Research Online Documents on Economics 67681, London School of Economics and Political Science, LSE Library.
    9. Colin J. Hottman & Stephen J. Redding & David E. Weinstein, 2016. "Quantifying the Sources of Firm Heterogeneity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1291-1364.
    10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    11. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    12. Chang-Tai Hsieh & Nicholas Li & Ralph Ossa & Mu-Jeung Yang, 2016. "Gains from Trade with Flexible Extensive Margin Adjustment," NBER Working Papers 22069, National Bureau of Economic Research, Inc.
    13. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
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    Cited by:

    1. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    2. Gaulier, Guillaume & Sztulman, Aude & Ünal, Deniz, 2020. "Are global value chains receding? The jury is still out. Key findings from the analysis of deflated world trade in parts and components," International Economics, Elsevier, vol. 161(C), pages 219-236.
    3. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," 2018 Meeting Papers 627, Society for Economic Dynamics.
    4. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2019. "The Impact of the 2018 Tariffs on Prices and Welfare," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 187-210, Fall.
    5. Clemens C. Struck, 2017. "On the Interaction of Growth, Trade and International Macroeconomics," Working Papers 201724, School of Economics, University College Dublin.
    6. Hottman, Colin J. & Monarch, Ryan, 2020. "A matter of taste: Estimating import price inflation across U.S. income groups," Journal of International Economics, Elsevier, vol. 127(C).
    7. Benguria, Felipe, 2021. "The matching and sorting of exporting and importing firms: Theory and evidence," Journal of International Economics, Elsevier, vol. 131(C).

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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