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Gains from Trade: Does Sectoral Heterogeneity Matter?

Rahul Giri, Kei-Mu Yi and Hakan Yilmazkuday

No 2103, Working Papers from Florida International University, Department of Economics

Abstract: This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs. We estimate the sectoral trade elasticity with the Simonovska and Waugh (2014) simulated method of moments estimator and micro price data. Our estimates range from 2.97 to 8.94 across sectors. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We remove one or two sources of sectoral heterogeneity at a time, and compare the gains from trade to the benchmark model. We also compare an aggregate model with a single elasticity to the benchmark model. Our main result from these counterfactual exercises is that sectoral heterogeneity does not always lead to an increase in the gains from trade, which is consistent with the theory.

Keywords: gains from trade; estimated trade elasticities; simulated method of moments; sectoral heterogeneity; international price dispersion; multi-sector trade (search for similar items in EconPapers)
JEL-codes: F10 F11 F14 F17 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cwa and nep-int
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https://economics.fiu.edu/research/pdfs/2021_working_papers/2103.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: Gains from trade: Does sectoral heterogeneity matter? (2021) Downloads
Working Paper: Gains from Trade: Does Sectoral Heterogeneity Matter? (2020) Downloads
Working Paper: Gains from Trade: Does Sectoral Heterogeneity Matter? (2018) Downloads
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