Trade elasticity: Estimates from product-level data

Juyoung Cheong, Do Won Kwak () and Kam Ki Tang

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In a seminal paper, Helpman et al. (2008) demonstrate that accounting for self-selection and firm heterogeneity is crucial for obtaining unbiased estimates in the gravity equation. In this paper, we show how this insight helps solve the trade elasticity puzzle that, hitherto, trade elasticity estimates in the gravity equations have implied very small welfare gains from trade. To apply their approach to product-level data, we propose new exclusion restrictions based on the export learning literature. Our new estimates imply much larger welfare gains from trade than the previous literature suggested.

Keywords: Gravity Model; Firm Heterogeneity; Disaggregate Data; Trade Elasticity; Learning (search for similar items in EconPapers)
JEL-codes: C13 C23 F10 F15 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2020-03
New Economics Papers: this item is included in nep-int and nep-ore
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https://cama.crawford.anu.edu.au/sites/default/fil ... cheong_kwak_tang.pdf (application/pdf)

Related works:
Working Paper: Trade Elasticity: Estimates From Product-Level Data (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-29

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