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Growth and Trade with Frictions: A Structural Estimation Framework

Author

Listed:
  • James Anderson

    (Department of Economics and NBER)

  • Mario Larch

    (Rechts- und Wirtschaftswissenschaftliche Facultät)

  • Yoto Yotov

    (School of Economics, ERI-BAS & CESifo)

Abstract

We build and estimate a structural dynamic general equilibrium model of growth and trade. Trade affects growth through changes in consumer and producer prices that in turn stimulate or impede physical capital accumulation. At the same time, growth affects trade, directly through changes in country size and indirectly through altering the incidence of trade costs. The model combines structural gravity with a capital accumulation specification of the transition between steady states. Theory translates into an intuitive econometric system that identifies the causal impact of trade on income and growth, and also delivers estimates of the key structural parameters in our model. Counterfactual experiments based on the estimated model give evidence for strong dynamic relationships between growth and trade, resulting in doubling of the static gains from trade liberalization.

Suggested Citation

  • James Anderson & Mario Larch & Yoto Yotov, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2015_002
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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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