Trade Flows, Multilateral Resistance, and Firm Heterogeneity

Alberto Behar () and Benjamin Nelson

No 2012/297, IMF Working Papers from International Monetary Fund

Abstract: We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form, such that the extensive margin is also affected by multilateral resistance. We develop Taylor approximated multilateral resistance terms with which to capture the comparative static effects of changes in trade costs. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries. However, if all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in most cases, despite the larger trade elasticities implied by firm heterogeneity. As a consequence, the world-wide trade response, though positive, is much lower.

Keywords: WP; trade cost; Gravity models; multilateral resistance; firm heterogeneity; trade elasticity; trade flow; World trade resistance; trade response; trade elasticities net; trade friction; Plurilateral trade; Trade balance; Exports; Multilateral trade; Imports; Global; Country-pair GDP share (search for similar items in EconPapers)
Pages: 39
Date: 2012-12-20
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Trade Flows, Multilateral Resistance and Firm Heterogeneity (2009)
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