Template-Type: ReDIF-Paper 1.0
Author-Name: Ina Simonovska
Author-Name-First: Ina
Author-Name-Last: Simonovska
Author-Name: Michael Waugh
Author-Name-First: Michael
Author-Name-Last: Waugh
Author-Workplace-Name: Department of Economics, University of California Davis
Title: The Elasticity of Trade: Estimates and Evidence
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 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.
Length: 51
File-URL: https://repec.dss.ucdavis.edu/files/ZUGqiMN3533h5DXotFZLtYJy/11-2.pdf
File-Format: application/pdf
Number: 319
Classification-JEL: F10, F11, F14, F17
KeyWords: elasticity of trade, bilateral, gravity, price dispersion, indirect inference
Creation-Date: 20111031
Handle: RePEc:cda:wpaper:319