Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/58402
Authors: 
Simonovska, Ina
Waugh, Michael
Year of Publication: 
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

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