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http://hdl.handle.net/10419/58402
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| Title: | | The elasticity of trade: Estimates and evidence  |
| Authors: | | Simonovska, Ina Waugh, Michael |
| Issue Date: | | 2011 |
| Series/Report no.: | | Working Papers, University of California, Department of Economics 11,2 |
| Abstract: | | Quantitative results from a large class of structural gravity models of international trade depend critically on the elasticity of trade with respect to trade frictions. We develop a new simulated method of moments estimator to estimate this elasticity from disaggregate price and trade-flow data and we use it within Eaton and Kortum's (2002) Ricardian model. We apply our estimator to new disaggregate price and trade-flow data for 123 countries in the year 2004. Our method yields a trade elasticity of roughly four, nearly fifty percent lower than Eaton and Kortum's (2002) approach. Moreover, robustness exercises result in trade elasticity estimates that are both lower and fall within a narrower range relative to the existing literature. This difference doubles the welfare gains from international trade. |
| Subjects: | | elasticity of trade bilateral gravity price dispersion indirect inference |
| JEL: | | F10 F11 F14 F17 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers, Department of Economics, UC Davis
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