Fantastic Beasts and Where to Find Them

Gianmarco Ottaviano and Davide Suverato

No 18935, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Fantastic beasts are magical creatures that cannot be seen unless one looks for them with the eye of the wizard, but that still play a significant role in the world. The fantastic beasts we hunt and find in the present paper are welfare changes induced by resource shocks that are invisible in quantitative trade models with monopolistic competition and heterogeneous firms if one relies on the pervasive assumption of demand exhibiting constant elasticity of substitution. We argue that, for fantastic beasts to materialize, markups have to vary across firms and firm heterogeneity has to vary across sectors. This is shown both theoretically and empirically exploiting a panel of 76 countries and 17 manufacturing industries for the period 1995-2020.

Keywords: Quantitative; trade; models (search for similar items in EconPapers)
JEL-codes: F12 F43 (search for similar items in EconPapers)
Date: 2024-03
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Working Paper: Fantastic beasts and where to find them (2024)
Working Paper: Fantastic beasts and where to find them (2024)
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