Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade

Rodrigo Adao, Arnaud Costinot and Dave Donaldson

No 21401, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a methodology to construct nonparametric counterfactual predictions, free of functional-form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.

JEL-codes: F10 F11 F14 F15 F17 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-int
Note: ITI
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Citations: View citations in EconPapers (9)

Published as Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, vol 107(3), pages 633-689.

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Journal Article: Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade (2017)
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