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The Long and Short (Run) of Trade Elasticities

Christoph Boehm (), Andrei Levchenko and Nitya Pandalai-Nayar

No 27064, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a novel approach to estimate the trade elasticity at various horizons. When countries change Most Favored Nation (MFN) tariffs, partners that trade on MFN terms experience plausibly exogenous tariff changes. The differential effects on imports from these countries relative to a control group – countries not subject to the MFN tariff scheme – can be used to identify the trade elasticity. We build a panel dataset combining information on product-level tariffs and trade flows covering 1995-2018, and estimate the trade elasticity at short and long horizons using local projections (Jordà, 2005). Our main findings are that the elasticity of tariff-exclusive trade flows in the year following the exogenous tariff change is about -0.76, and the long-run elasticity ranges from -1.75 to -2.25. Our long-run estimates are smaller than typical in the literature, and it takes 7-10 years to converge to the long run, implying that (i) the welfare gains from trade are high and (ii) there are substantial convexities in the costs of adjusting export participation.

JEL-codes: F0 F1 F14 F4 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-gen, nep-int and nep-ore
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Working Paper: The Long and Short (Run) of Trade Elasticities (2020) Downloads
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