Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/46314 
Year of Publication: 
2011
Series/Report no.: 
CESifo Working Paper No. 3356
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Quantitative results from a large class of international trade models depend critically on the elasticity of trade with respect to trade frictions. We develop a simulated method of moments estimator to estimate this elasticity from disaggregate price and trade-flow data using the Ricardian model. We motivate our estimator by proving that the estimator developed in Eaton and Kortum (2002) is biased in any finite sample. We quantitatively show that the bias is severe and that the data requirements necessary to eliminate it in practice are extreme. Applying our estimator to new disaggregate price and trade-flow data for 123 countries in the year 2004 yields a trade elasticity of roughly four, nearly fifty percent lower than Eaton and Kortum's (2002) approach. 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:

Files in This Item:
File
Size
440.56 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.