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The Composition of Trade Flows and the Aggregate Effects of Trade Barriers

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  • Scott French

    (School of Economics, UNSW Business School, UNSW)

Abstract

A widely used class of quantitative trade models implicitly assumes that patterns of comparative advantage take a specific form such that they have no influence over the effect of trade barriers on aggregate trade flows and welfare. In this paper, I relax this assumption, developing a framework in which to analyze the role of interactions among countries' patterns of comparative advantage in determining the aggregate effects of trade barriers. My model preserves much of the tractability of standard aggregate quantitative trade models while allowing for the effects of any pattern of comparative advantage, across many products and countries, to be taken into account. After fitting my model to product-level trade data, I find that the composition of trade flows is quantitatively important in determining the welfare gains from trade and the aggregate effects of trade barriers. A key finding is that the welfare gains from trade tend to be larger and more skewed in favor of low-income countries than an aggregate model would suggest.

Suggested Citation

  • Scott French, 2015. "The Composition of Trade Flows and the Aggregate Effects of Trade Barriers," Discussion Papers 2015-24, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2015-24
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    Cited by:

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    4. Mario Larch & Joschka Wanner & Yoto V. Yotov & Thomas Zylkin, 2017. "The Currency Union Effect: A PPML Re-assessment with High-Dimensional Fixed Effects," CESifo Working Paper Series 6464, CESifo.
    5. Claire Brunel & Thomas Zylkin, 2022. "Do cross‐border patents promote trade?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 379-418, February.
    6. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    7. Himics, Mihaly & Listorti, Giulia & Tonini, Axel, 2020. "Simulated economic impacts in applied trade modelling: A comparison of tariff aggregation approaches," Economic Modelling, Elsevier, vol. 87(C), pages 344-357.
    8. Nelson Lind & Natalia Ramondo, 2018. "Innovation, Knowledge Diffusion, and Globalization," NBER Working Papers 25071, National Bureau of Economic Research, Inc.
    9. French, Scott & Zylkin, Tom, 2024. "The effects of free trade agreements on product-level trade," European Economic Review, Elsevier, vol. 162(C).
    10. Alassane D. Yeo & Aimin Deng & Todine Y. Nadiedjoa, 2020. "Trade Facilitation Effects on International Trade: Evidence From Lower-Middle and Upper-Middle-Income Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 254-266, October.
    11. Nelson Lind & Natalia Ramondo, 2023. "Global Innovation and Knowledge Diffusion," American Economic Review: Insights, American Economic Association, vol. 5(4), pages 494-510, December.
    12. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    13. Michael Pfaffermayr, 2020. "Trade creation and trade diversion of economic integration agreements revisited: a constrained panel pseudo-maximum likelihood approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 985-1024, November.
    14. Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.
    15. Timini, Jacopo & Conesa, Marina, 2019. "Chinese Exports and Non-Tariff Measures: Testing for Heterogeneous Effects at the Product Level," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 34(2), pages 327-345.
    16. Pfaffermayr, Michael, 2020. "Constrained Poisson pseudo maximum likelihood estimation of structural gravity models," International Economics, Elsevier, vol. 161(C), pages 188-198.
    17. Patrick Alexander, 2021. "Vertical specialisation and gains from trade," The World Economy, Wiley Blackwell, vol. 44(4), pages 1110-1140, April.
    18. Mateo Hoyos, 2024. "Tariffs and Growth: Heterogeneity by Economic Structure," Working Papers DTE 638, CIDE, División de Economía.

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    More about this item

    Keywords

    international trade; welfare; composition; product level; comparative advantage; trade barriers; gravity; trade cost elasticity; developing countries;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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