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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/38920
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| Title: | | International trade and monopolistic competition without CES: Estimating translog gravity  |
| Authors: | | Novy, Dennis |
| Issue Date: | | 2010 |
| Series/Report no.: | | CESifo working paper Trade Policy 3008 |
| Abstract: | | This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor. In an application to the currency union effect, I find that a currency union is only associated with substantially higher bilateral trade if the exporting country provides a small share of the destination country's imports. For other pairs, the currency union effect is modest or indistinguishable from zero. |
| Subjects: | | translog trade costs gravity currency union monopolistic competition trade cost elasticity heterogeneity zero trade |
| JEL: | | F11 F12 F15 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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