Trade adjustment in the European Union - a structural estimation approach

Chiara Osbat and Vesna Corbo

No 1535, Working Paper Series from European Central Bank

Abstract: We estimate the elasticity of substitution of a country's imports, and that of its exports on the world market, for EU countries using sector level trade data. We present a new empirical strategy based on the identification scheme by Feenstra (1994), which enables the estimation of elasticities from data on exports. Moreover, our use of bootstrap methods allows us to obtain better elasticity measures, and to better characterize their accuracy. Our results show much heterogeneity in the estimates of the elasticity of substitution across industrial sectors. This, in turn, points to heterogeneity across countries, due to different production and trade structures. We obtain aggregate elasticities for the EU27 countries, with a mean of 3.5 for imports and 4.0 for exports, bringing us closer to traditional estimates and bridging the gap between the newer micro data estimates and the more traditional estimates found in the macroeconomic literature. JEL Classification: C23, F14, F47

Keywords: aggregation; calibration of macroeconomic models; Elasticity of Substitution; heterogeneity (search for similar items in EconPapers)
Date: 2013-04
New Economics Papers: this item is included in nep-eec, nep-eur and nep-int
Note: 261931
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20131535

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