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From micro to macro: Demand, supply, and heterogeneity in the trade elasticity

Author

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  • Maria Bas

    (Centre d'Etudes Prospectives et d'Informations Internationales)

  • Thierry Mayer

    (Département d'économie)

  • Mathias Thoenig

    (Centre Universitaire d'Informatique)

Abstract

Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into a unique elasticity, estimable with a gravity equation. This paper provides a theory-consistent methodology for quantifying country-pair specific aggregate elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000–2006 period, we are able to estimate all the components of the bilateral aggregate elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then used to calculate theoretical predictions of bilateral aggregate elasticities over the whole set of destinations, and how those elasticities decompose into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of aggregate trade elasticities.

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  • Maria Bas & Thierry Mayer & Mathias Thoenig, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Sciences Po publications info:hdl:2441/2j87pv5ou18, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/2j87pv5ou185f980qgrpf9net0
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    Cited by:

    1. M. Bussière & G. Gaulier & W. Steingress, 2016. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Working papers 608, Banque de France.
    2. Fontagné, Lionel & Orefice, Gianluca, 2018. "Let’s try next door: Technical Barriers to Trade and multi-destination firms," European Economic Review, Elsevier, vol. 101(C), pages 643-663.
    3. Clément Malgouyres & Thierry Mayer, 2018. "Exports and labor costs: evidence from a French policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(3), pages 429-454, August.
    4. Keith Head & Thierry Mayer, 2015. "Brands in Motion: How frictions shape multinational production," Working Papers 2015-26, CEPII research center.
    5. 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.
    6. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    7. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A view from Trade," Working Papers 1034, Barcelona Graduate School of Economics.
    8. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
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    10. Marco Bee & Stefano Schiavo, 2018. "Powerless: gains from trade when firm productivity is not Pareto distributed," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 15-45, February.
    11. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    12. Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments," Sciences Po publications 45, Sciences Po.
    13. Olga A. Timoshenko & Erick Sager, 2017. "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    14. Jung, Jae Wook & Simonovska, Ina & Weinberger, Ariel, 2019. "Exporter heterogeneity and price discrimination: A quantitative view," Journal of International Economics, Elsevier, vol. 116(C), pages 103-124.
    15. Mayer, Thierry & Vicard, Vincent & Zignago, Soledad, 2018. "The Cost of Non-Europe, Revisited," CEPR Discussion Papers 12844, C.E.P.R. Discussion Papers.
    16. Julien Gourdon & Laura Hering & Stéphanie Monjon & Sandra Poncet, 2019. "Trade policy repercussions: the role of local product space -Evidence from China," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02065779, HAL.
    17. Blank, Sven & Egger, Peter H. & Merlo, Valeria & Wamser, Georg, 2018. "A structural quantitative analysis of services trade de-liberalization," Discussion Papers 47/2018, Deutsche Bundesbank.
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    21. Pamela Bombarda & Stefania Marcassa, 2017. "Welfare and Trade Margins with Multinational Production," THEMA Working Papers 2017-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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    More about this item

    Keywords

    Trade elasticity; Firm-level data; Heterogeneity; Gravity; Pareto; Log-normal;

    JEL classification:

    • F1 - International Economics - - Trade

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