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Different Trade Models, Different Trade Elasticities?

  • Michael Waugh

    (New York University)

  • Ina Simonovska

    (University of California, Davis)

How has the development of new trade models changed our understanding of the welfare gains from trade? Answering this question depends solely on estimates of the trade elasticity obtained using techniques applicable across different models. In this paper we build on the methods of Simonovska and Waugh (2011) and we develop a common estimator for the trade elasticity that is applicable across different models that feature micro-level heterogeneity. The benefit of our approach is that, while the estimation uses the same moment conditions, it allows for different micro structures to matter. We apply the estimator to the models of Eaton and Kortum (2002), Bernard, Eaton, Jensen, and Kortum (2003), and a variant of the framework of Melitz (2003) and Chaney (2008). We find that the trade elasticity estimates differ considerably across models. The results suggest that the Bernard, Eaton, Jensen, and Kortum (2003) model yields the highest, while the Melitz (2003) model yields the lowest welfare gains from trade.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 618.

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Date of creation: 2012
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Handle: RePEc:red:sed012:618
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  1. Ina Simonovska & Michael Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," Working Papers 112, University of California, Davis, Department of Economics.
  2. James G. MacKinnon & Anthony A. Smith Jr., 1995. "Approximate Bias Correction in Econometrics," Working Papers 919, Queen's University, Department of Economics.
  3. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  4. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  6. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  7. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  8. The University of Iowa & Michael Waugh, 2008. "Bilateral Trade, Relative Prices, and Trade Costs," 2008 Meeting Papers 781, Society for Economic Dynamics.
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