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Different Trade Models, Different Trade Elasticities?

Author

Listed:
  • Michael Waugh

    (New York University)

  • Ina Simonovska

    (University of California, Davis)

Abstract

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.

Suggested Citation

  • Michael Waugh & Ina Simonovska, 2012. "Different Trade Models, Different Trade Elasticities?," 2012 Meeting Papers 618, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:618
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    References listed on IDEAS

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    1. Scott Bradford, 2003. "Paying the Price: Final Goods Protection in OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 24-37, February.
    2. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
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    Citations

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    Cited by:

    1. Asturias, Jose & Hur, Sewon & Kehoe, Timothy J. & Ruhl, Kim J., 2016. "The interaction and sequencing of policy reforms," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 45-66.
    2. Eaton, Jonathan & Kortum, Samuel & Neiman, Brent, 2016. "Obstfeld and Rogoff׳s international macro puzzles: a quantitative assessment," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 5-23.
    3. Klaus Desmet & Dávid Krisztián Nagy & Esteban Rossi-Hansberg, 2015. "The Geography of Development: Evaluating Migration Restrictions and Coastal Flooding," NBER Working Papers 21087, National Bureau of Economic Research, Inc.
    4. Mutreja, Piyusha & Ravikumar, B. & Riezman, Raymond & Sposi, Michael, 2014. "Price equalization, trade flows, and barriers to trade," European Economic Review, Elsevier, vol. 70(C), pages 383-398.
    5. Giovanni Federico & Antonio Tena-Junguito, 2017. "A tale of two globalizations: gains from trade and openness 1800–2010," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 601-626, August.
    6. Waugh, Michael E. & Ravikumar, B., 2016. "Measuring openness to trade," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 29-41.
    7. Auer, Raphael A., 2016. "Comments on “Measuring openness to trade” by M.E. Waugh and B. Ravikumar," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 42-44.

    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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