Structural Estimation of Variety Gains from Trade Integration in Asia
No 2009.7, Working Papers from International Network for Economic Research - INFER
Structural Estimation of Variety Gains from Trade Integration in Asia Abstract:Â The present paper studies variety gains from trade integration in Asia. Applying a heterogenous Ã–rm model we simulate trade integration in Asia in three different scenarios (CIFTA, ASEAN+3, and ASEAN+6). The paper makes three contributions to the literature. First, in addition to traditional gains from specialisation, we also account for gains arising from increased number of different varieties. Second, we explicitly account for diÂ§erences in trade gains between variable and fixed trade cost reduction. Third, using a unique set of firm-level panel data we estimate the underlying trade modelÃs structural parameters econometrically. We find that the gains from trade integration are substantial. Reducing trade barriers by 15 percent induces trade growth up to 60 percent, which due to the additional extensive margin is more than in trade models with representative firms. Similarly, due due additional welfare gains from variety growth, the gains from trade are up to 17 percent higher than in models with homogenous products.
Keywords: Variety gains; extensive margin; trade integration; Asia; heterogenous firms. (search for similar items in EconPapers)
JEL-codes: F12 F14 R12 R23 (search for similar items in EconPapers)
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