Trade Elasticity: Estimates from Product-Level Data

40 Pages Posted: 16 Apr 2020

See all articles by Juyoung Cheong

Juyoung Cheong

Department of Economics, Kyung Hee University

Do Won Kwak

Korea University

Kam Ki Tang

University of Queensland - School of Economics

Date Written: March 27, 2020

Abstract

In a seminal paper, Helpman et al. (2008) demonstrate that accounting for self-selection and firm heterogeneity is crucial for obtaining unbiased estimates in the gravity equation. In this paper, we show how this insight helps solve the trade elasticity puzzle that, hitherto, trade elasticity estimates in the gravity equations have implied very small welfare gains from trade. To apply their approach to product-level data, we propose new exclusion restrictions based on the export learning literature. Our new estimates imply much larger welfare gains from trade than the previous literature suggested.

Keywords: Gravity Model, Firm Heterogeneity, Disaggregate Data, Trade Elasticity, Learning

JEL Classification: C13, C23, F10, F15

Suggested Citation

Cheong, Juyoung and Kwak, Do Won and Tang, Kam Ki, Trade Elasticity: Estimates from Product-Level Data (March 27, 2020). CAMA Working Paper No. 29/2020, Available at SSRN: https://ssrn.com/abstract=3562072 or http://dx.doi.org/10.2139/ssrn.3562072

Juyoung Cheong

Department of Economics, Kyung Hee University ( email )

Dongdaemun-ku
Seoul, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

Do Won Kwak

Korea University ( email )

145 Anam-ro, Sungbuk-gu
Division of International Studies
Seoul, Seoul 02841
Korea, Republic of (South Korea)

Kam Ki Tang (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia
+61 07 3365 9796 (Phone)
+61 07 3365 7299 (Fax)

HOME PAGE: http://www.uq.edu.au/economics/index.html?page=15910&pid=15834

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
226
PlumX Metrics