From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity

M. Bas, Thierry Mayer and Mathias Thoenig

Working papers from Banque de France

Abstract: Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into a unique elasticity, estimable with a gravity equation. This paper provides a theory-based method for quantifying country-pair specific elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000-2006 period, we are able to estimate all the components of the dyadic elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then assembled under theoretical guidance to calculate bilateral aggregate elasticities over the whole set of destinations, and their decomposition into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of non-constant macro trade elasticities.

Keywords: trade elasticity; firm-level data; heterogeneity; gravity; Pareto; log-normal (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2015
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Related works:
Journal Article: From micro to macro: Demand, supply, and heterogeneity in the trade elasticity (2017)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2017)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2017)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2017)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2015)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2015)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2015)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2015)
Working Paper: From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity (2015)
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