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Gains from Trade with Flexible Extensive Margin Adjustment

Chang-Tai Hsieh, Nicholas Li (), Ralph Ossa and Mu-Jeung Yang

No 22069, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a new sufficient statistic to measure the gains from trade in models where the extensive margin trade elasticity is not necessarily constant. This statistic is a function of one data moment, the market share of continuing domestic products, and one parameter, the elasticity of substitution between products. It measures the gains from trade in a Ricardian model with any productivity distribution or a Melitz model with any productivity distribution and any pattern of selection into production and exporting. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement and find that they are smaller than suggested by statistics that assume a constant extensive margin response of trade.

JEL-codes: F10 F12 F14 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-int
Note: EFG ITI PR
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