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Unlocking new methods to estimate country-specific trade costs and trade elasticities

Rebecca Freeman, Mario Larch (), Angelos Theodorakopoulos and Yoto Yotov

No 951, Bank of England working papers from Bank of England

Abstract: We propose new methods to identify the full impact of country-specific characteristics on bilateral trade flows within the framework of ‘the new quantitative trade model’. We complement theory with a simple two-stage estimating procedure, and offer a proof of concept by quantifying the impact of country-specific research and development expenditure on trade. Results suggest a positive relationship overall, but a larger impact on international (versus domestic) trade. Further, our methodology allows us to recover trade elasticity estimates without the need for price/tariff data. Bringing this to the sectoral level, we obtain estimates of the trade elasticity for manufacturing, services, and tradable versus non-tradable sectors.

Keywords: Structural gravity; country-specific trade costs; trade elasticity; elasticity of substitution R&D; trade (search for similar items in EconPapers)
JEL-codes: F10 F14 F16 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-11-19
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Working Paper: Unlocking New Methods to Estimate Country-Specific Trade Costs and Trade Elasticities (2021) Downloads
Working Paper: Unlocking New Methods to Estimate Country-specific Trade Costs and Trade Elasticitie (2021) Downloads
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