The elasticity of trade: Estimates and evidence

Ina Simonovska and Michael Waugh

Journal of International Economics, 2014, vol. 92, issue 1, 34-50

Abstract: Quantitative results from a large class of structural gravity models of international trade depend critically on the elasticity of trade with respect to trade frictions. We develop a new simulated method of moments estimator to estimate this elasticity from disaggregate price and trade-flow data and we use it within Eaton and Kortum's (2002) Ricardian model. We apply our estimator to disaggregate price and trade-flow data for 123 countries in the year 2004. Our method yields a trade elasticity of roughly four, nearly fifty percent lower than Eaton and Kortum's (2002) approach. This difference doubles the welfare gains from international trade.

Keywords: Elasticity of trade; Bilateral; Gravity; Price dispersion; Indirect inference (search for similar items in EconPapers)
JEL-codes: F10 F11 F14 F17 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (410)

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Related works:
Working Paper: The Elasticity of Trade: Estimates and Evidence (2011)
Working Paper: The Elasticity of Trade: Estimates and Evidence (2011)
Working Paper: The Elasticity of Trade: Estimates and Evidence (2011)
Working Paper: The Elasticity of Trade: Estimates and Evidence (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:92:y:2014:i:1:p:34-50

DOI: 10.1016/j.jinteco.2013.10.001

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