The Elasticity of Trade: Estimates and Evidence

By Ina Simonovska, Michael E. Waugh. Social Science Research Network, 2011

699 citations recorded by the source corpus.

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 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. This difference doubles the welfare gains from international trade.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/680849b6d0f0648f47ba7c5827de50d4da5f994d

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Citations in the corpus

Trade, Domestic Frictions, and Scale Effects (2016, background): “Among the most recent estimates, Simonovska and Waugh (2014) place θ between 4 and 5.”
New Trade Models, New Welfare Implications (2015, background): “domestic trade share and trade elasticity) as in ACR (28), but also on the change in firm size (captured in (29) by the total fixed costs paid by the representative firm).”
Who's Getting Globalized? The Size and Implications of Intra-National Trade Costs (2015, positive): “In terms of the second challenge, Eaton and Kortum (2002), Simonovska (forthcoming), Donaldson (forthcoming) and Simonovska and Waugh (2014) argue that spatial arbitrage is free to enter and hence that spatial price gaps place lower bounds on the costs of trade, where these lower bounds are binding…”
The Economic Geography of Global Warming (2021, background): “0) scenario, CO2 emissions reach a peak of 117 GtCO2 (49 GtCO2) in 2110 (2079), a value slightly higher (lower) than the 106 GtCO2 (63 GtCO2) of the IPCC scenario.”
Estimates of the Trade and Welfare Effects of NAFTA (2012, neutral): “13For instance, Feenstra (1994), Head and Ries (2001), Anderson and van Wincoop (2004) and references therein, Romalis (2007), Simonovska and Waugh (2013) and Bergstrand, Egger, and Larch (2013). at Y ale U niversity on O ctober 2, 2015 http://restud.oxfordjournals.org/ D ow nloaded from of the…”
Estimating the effects of non‐discriminatory trade policies within structural gravity models (2017, neutral): “12 See, for example, Eaton and Kortum (2002), Anderson and van Wincoop (2003), Broda et al. (2006), Kee et al. (2008) and Simonovska and Waugh (2014).”
From micro to macro: Demand, supply, and heterogeneity in the trade elasticity ☆ (2017, positive): “Since the level of clustering (destination country) is not nested within the level of fixed effects and the number of clusters is quite small with respect to the size of each cluster, we also implement the solution proposed by Wooldridge (2006). He recommends to run country-specific random effects o”