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The Elasticity of Trade: Estimates and Evidence

Ina Simonovska () and Michael Waugh

No 319, Working Papers from University of California, Davis, Department of Economics

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)
Pages: 51
Date: 2011-10-31
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https://repec.dss.ucdavis.edu/files/ZUGqiMN3533h5DXotFZLtYJy/11-2.pdf (application/pdf)

Related works:
Journal Article: The elasticity of trade: Estimates and evidence (2014) Downloads
Working Paper: The Elasticity of Trade: Estimates and Evidence (2011) Downloads
Working Paper: The Elasticity of Trade: Estimates and Evidence (2011) Downloads
Working Paper: The Elasticity of Trade: Estimates and Evidence (2010)
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